Reference no: EM132964959
Question - A MNE raises capital in two different countries with the following characteristics: $150,000,000 in 10-year bonds paying 8% interest with total floatation costs of $10,000,000 issued in Country A where the firm pays a marginal income tax rate of 35%.
$300,000,000 in 20-year bonds paying 9.5% interest with total floatation costs of $15,000,000 issued in Country B where the firm pays a marginal income tax rate of 30%.
$300,000,000 in Common Stock issued in Country A where the firm's shares have a beta of 1.2.
$350,000,000 in Common Stock issued in Country B where the firm's shares have a beta of 1.3.
Assume all bonds are denominated and repaid in the firm's home currency.
Assume a risk-free rate of return of 4%.
Assume a rate of return on the market portfolio of 11%.
What is the company's after-tax cost of debt in Countries A and B, respectively?
A. 8.00%; 9.45%
B. 4.69%; 6.75%
C. 8.67%; 9.75%
D. 5.63%; 6.83%
E. None of the above
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