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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
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 SF1.5 million, a one year period, an initial spot rate of SF1.35000/$, a 6.000% cost of debt, and a 30% tax rate, what is the effective cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was: SF1.40/$? Please answer in decimal format (4 decimal places)
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