Question
Three U.S. based firms are expanding into Switzerland. Assume Cullowhee Corp. will use equity to finance a project in Switzerland, while Asheville Corp. will rely
Three U.S. based firms are expanding into Switzerland. Assume Cullowhee Corp. will use equity to finance a project in Switzerland, while Asheville Corp. will rely on a dollar-denominated loan to finance a project in Switzerland, and Boone Corp. will rely on a Swiss franc-denominated loan to finance a project in Switzerland. The firms will arrange their financing in one month. This week, the U.S. risk-free long-term interest rate increased declined, but interest rates in Switzerland did not change. Do you think the estimated cost of capital for the projects by each of these 3 U.S. firms increased, decreased, or remained unchanged? Explain.
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