The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a
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Question:
The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF1.6 million, aone-year period, an initial spot rate of SF1.4600/$, a 4.575% cost ofdebt, and a 30% taxrate, what is the effectiveafter-tax cost of debt for one year for a U.S.dollar-based company if the exchange rate at the end of the periodwas:
a. SF1.4600/$
b. SF1.3900/$
c. SF1.3250/$
d. SF1.5520/$
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