Reference no: EM132506290

Cemex, a cement company from Mexico that evaluates all business results, including financing costs, in U.S. dollars. This is done even though the firm is a Mexican corporation; they have significant exposure to the U.S. market. They are listed on the Mexican stock exchange, but have Level III ADRs in the U.S. The company needs to borrow $100,000,000 or the foreign currency equivalent for six years. For all issues, interest is payable once per year, at the end of the year. Available alternatives are listed.

A. Sell Japanese yen bonds at par yielding 3.65% per annum. The current exchange rate is ¥105.5/$, and the yen is expected to strengthen against the dollar by 1.75% per annum.

B. Sell euro-denominated bonds at par yielding 6.75% per annum. The current exchange rate is $1.1945/€, and the euro is expected to weaken against the dollar by 1% per annum.

C. Sell U.S. dollar bonds at par yielding 5.5% per annum.

If the firm currently has bonds outstanding totaling $200,000,000 with an average pretax cost of debt of 6.18%. If the company's average tax rate is 28% what is the new average after-tax cost of debt?