Financing Decision Veer Co. is a U.S.-based MNC that has most of its operations in Japan. Because the Japanese companies with which it competes use more financial leverage, it has decided to adjust its own financial leverage to be in line with theirs. With this heavy emphasis on debt, Veer should reap more tax advantages (assume that all interest expense will be tax deductible). It believes that the market’s perception of its risk will remain unchanged, because its financial leverage will still be no higher than that of its Japanese competitors. Comment on this strategy.

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 9QA
Textbook Problem

Financing Decision Veer Co. is a U.S.-based MNC that has most of its operations in Japan. Because the Japanese companies with which it competes use more financial leverage, it has decided to adjust its own financial leverage to be in line with theirs. With this heavy emphasis on debt, Veer should reap more tax advantages (assume that all interest expense will be tax deductible). It believes that the market’s perception of its risk will remain unchanged, because its financial leverage will still be no higher than that of its Japanese competitors. Comment on this strategy.

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