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Assume the following information for Maximus Co., a U.S.-based MNC that is considering obtaining funding for a project in Germany:
U.S. risk-free rate = .04
German risk-free rate = .06
Risk premium on dollar-denominated debt provided by U.S. creditors = 0.04
Risk premium on euro-denominated debt provided by German creditors = .04
Beta of project = 1.2
Expected U.S. market return = .10
U.S. corporate tax rate = 0.32
German corporate tax rate = .40
What is Maximus’s cost of dollar-denominated debt?
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