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What is the effective after-tax cost of debt

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Question - Foreign Exchange Risk and the Cost of Borrowing Swiss Francs.

The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF1.4 million, a one-year period, an initial spot rate of SF1.4900/$, a 5.493% cost of debt, and a 30% tax rate, what is the effective after-tax cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was:

SF1.4900?/$

SF1.4400?/$

SF1.4080?/$

SF1.6250?/$

If the exchange rate at the end of the period was SF1.4900/$, what is the effective after-tax cost of debt?

If the exchange rate at the end of the period was SF1.4400/$, what is the effective after-tax cost of debt?

If the exchange rate at the end of the period was SF1.4080/$, what is the effective after-tax cost of debt?

If the exchange rate at the end of the period was SF1.6250/$, what is the effective after-tax cost of debt?

Reference no: EM132857605

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