Assume that Seminole, Inc., considers issuing a Singapore dollar–denominated bond at its present coupon rate of 7 percent, even though it has no incoming cash flows to cover the bond payments. It is attracted to the low financing rate because U.S. dollar–denominated bonds issued in the United States would have a coupon rate of 12 percent. Assume that either type of bond would have a four-year maturity and could be issued at par value. Semi-nole needs to borrow $10 million. Therefore, it will issue either U.S. dollar–denominated bonds with a par value of $10 million or bonds denominated in Singapore dollars with a par value of S$20 million. The spotrate of the Singapore dollar is $.50. Seminole has forecasted the Singapore dollar’s value at the end of each ofthe next four years, when coupon payments are to be paid. Determine the expected annual cost of financingwith Singapore dollars. Should Seminole, Inc., issue bonds denominated in U.S. dollars or Singapore dollars? Explain. END OF YEAR EXCHANGE RATE OF SINGAPORE DOLLAR 1 $.52 2 .56 3 .58 4 .53

Assume that Seminole, Inc., considers issuing a Singapore dollar–denominated bond at its present coupon rate of 7 percent, even though it has no incoming cash flows to cover the bond payments. It is attracted to the low financing rate because U.S. dollar–denominated bonds issued in the United States would have a coupon rate of 12 percent. Assume that either type of bond would have a four-year maturity and could be issued at par value. Semi-nole needs to borrow $10 million. Therefore, it will issue either U.S. dollar–denominated bonds with a par value of $10 million or bonds denominated in Singapore dollars with a par value of S$20 million. The spotrate of the Singapore dollar is $.50. Seminole has forecasted the Singapore dollar’s value at the end of each ofthe next four years, when coupon payments are to be paid. Determine the expected annual cost of financingwith Singapore dollars. Should Seminole, Inc., issue bonds denominated in U.S. dollars or Singapore dollars? Explain. END OF YEAR EXCHANGE RATE OF SINGAPORE DOLLAR 1 $.52 2 .56 3 .58 4 .53

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter18: Long-term Debt Financing

Section: Chapter Questions

Problem 9QA

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