Foreign Exchange Risk and the Cost of Borrowing Swiss Francs.The chapter demonstrated that a firm...
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Foreign Exchange Risk and the Cost of Borrowing Swiss Francs.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 SF1.3 million, a one-year period, an initial spot rate of SF1.4600 /$, a 5.132 % cost of debt, and a 36 % tax rate, what is the effective after-tax cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was:
a. SF1.4600 /$
b. SF1.4200 /$
c. SF1.3550 /$
d. SF1.6060 /$
a. If the exchange rate at the end of the period was SF1.4600/$, what is the effective after-tax cost of debt?
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