The US company needs funding in the amount of 5 million USD. Funding may be in the form of a debt: 4-year bonds issued in USD, interest rate: 10 percent per year. The company, however, considers the possibility of raising the debt in EUR at 8 percent annually. The current exchange rate is USD 1 = 0.8 EUR. The future scenarios of FX rates are presented below. Decide which option is better for the company. a) stable: 0.8; 0.7; 0.85; 0.9; 0.8 b) weakening: 0.8; 0.75; 0.7; 0.65; 0.6 c) strengthening: 0.8; 0.85; 0.9; 0.95; 0.98

The US company needs funding in the amount of 5 million USD. Funding may be in the form of a debt: 4-year bonds issued in USD, interest rate: 10 percent per year. The company, however, considers the possibility of raising the debt in EUR at 8 percent annually. The current exchange rate is USD 1 = 0.8 EUR. The future scenarios of FX rates are presented below. Decide which option is better for the company. a) stable: 0.8; 0.7; 0.85; 0.9; 0.8 b) weakening: 0.8; 0.75; 0.7; 0.65; 0.6 c) strengthening: 0.8; 0.85; 0.9; 0.95; 0.98

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 7E

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