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Cost of debt in dollars and then finding the yen equivalent

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Reference no: EM131356117

The dollar cost of debt for Coval Consulting, a U.S. research firm, is 7.9%. The firm faces a tax rate of 34% on all income, no matter where it is earned. Managers in the firm need to know its yen cost of debt because they are considering a new bond issue in Tokyo to raise money for a new investment there. The risk-free interest rates on dollars and yen are r$=4% and r¥=0.7% respectively. Coval Consulting is willing to assume that capital markets are internationally integrated and that its free cash flows are uncorrelated with the yen-dollar spot rate. What is Coval Consulting's after-tax cost of debt in yen?

(Hint: Start by finding the after-tax cost of debt in dollars and then finding the yen equivalent.)

The after-tax cost of debt in dollars is (Round to two decimal places.)

The cost of equity is (Round to two decimal places.)

Reference no: EM131356117

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