Sambuka, Inc. can issue annual coupon bonds in either U$.$S$.$ dollars or in Euros that mature in three years. Dollar$-$denominated bonds would have a coupon rate of $4\mathrm{.}5$ percent; Euro$-$denominated bonds would have a coupon rate of $3\mathrm{.}5$ percent. Assuming that Sambuka can issue bonds worth $$10,000,000$ in US dollars or $8$ million Euros, given that the current exchange rate is $$1\mathrm{.}25/1$ Euro.

If the forecasted exchange rate for the Euro is $$1\mathrm{.}30/1$ Euro for each of the next three years what is the annual cost of financing for the Euro$-$denominated bonds? Which type of bond should Sambuka issue?

If the forecasted exchange rate for the Euro is $$1\mathrm{.}20$ for each of the next three years what is the annual cost of financing for the Euro$-$denominated bonds? Which type of bond should Sambuka issue?