After-tax cost of dollar-denominated debt

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Assume the following information for Bruma Co., a U.S.-based MNC that is considering obtaining funding for a project in Germany:

U.S. risk-free rate = 4%

German risk-free rate = 5%

Risk premium on dollar-denominated debt provided by U.S. creditors = 3%

Risk premium on euro-denominated debt provided by German creditors = 4%

Beta of project = 1.2

Expected U.S. market return = 10%

U.S. corporate tax rate = 30%

German corporate tax rate = 40%

What is Bruma's after-tax cost of dollar-denominated debt?

Reference no: EM131562457

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