Trade-offs Involved in an MNC’s Capital Structure Decisions In recent years, some U.S.-based MNCs (such as Apple) have taken advantage of the very low interest rates in the United States by borrowing large amounts of dollars to finance their operations. Write a short essay that explains the advantages and possible disadvantages (if any) of this type of financing. Consider how it affects the cost of capital. Also consider how it affects the MNC’s capital structure, but keep in mind that the interest payments on debt borrowed at an interest rate of 3 percent differ from the interest payments on debt borrowed at 10 percent. Also consider how this type of financing affects the MNC’s exposure to exchange rate risk if the funds borrowed are used to finance foreign operations.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 17, Problem 1CT
Textbook Problem

Trade-offs Involved in an MNC’s Capital Structure Decisions In recent years, some U.S.-based MNCs (such as Apple) have taken advantage of the very low interest rates in the United States by borrowing large amounts of dollars to finance their operations. Write a short essay that explains the advantages and possible disadvantages (if any) of this type of financing. Consider how it affects the cost of capital. Also consider how it affects the MNC’s capital structure, but keep in mind that the interest payments on debt borrowed at an interest rate of 3 percent differ from the interest payments on debt borrowed at 10 percent. Also consider how this type of financing affects the MNC’s exposure to exchange rate risk if the funds borrowed are used to finance foreign operations.

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