Bond Financing Analysis
Response to the following problem:
Sambuka, Inc., can is- sue bonds in either U.S. dollars or in Swiss francs. Dollar-denominated bonds would have a coupon rate of 15 percent; Swiss franc-denominated bonds would have a coupon rate of 12 percent. Assuming that Sambuka can issue bonds worth $10 mil- lion in either currency, that the current exchange rate of the Swiss franc is $.70, and that the forecasted exchange rate of the franc in each of the next 3 years is $.75, what is the annual cost of financing for the franc-denominated bonds? Which type of bond should Sambuka issue?