Assume the following information for Pexi Co., a U.S.-based MNC that is considering obtaining funding for a project in Germany:
U.S. risk-free rate = 4%
German risk-free rate = 5%
Risk premium on dollar-denominated debt provided by U.S. creditors = 3%
Risk premium on euro-denominated debt provided by German creditors = 4%
Beta of project = 1.2
Expected U.S. market return = 10%
U.S. corporate tax rate = 30%
German corporate tax rate = 40%
What is Pexi's cost of dollar-denominated debt?
a. 7.0%.
b. 8.0%.
c. 6.3%.
d. 4.9%.