The CAD cost of debt for Javelin Consulting, a Canadian research firm, is 7.7%. The firm faces a tax rate of 29% on all income, no matter where it is earned. Managers in the firm need to know its JPY cost of debt because they are considering launching a new bond issue in Tokyo to raise money for a new investment there. The risk-free interest rates on CAD and JPY rCAD = 5% and rJPY= 0.6%, respectively. Javelin.
Consulting is willing to assume that capital markets are internationally integrated and that its free cash flows are uncorrelated with the JPYdash–CAD spot rate. What is Javelin Consulting's after-tax cost of debt in JPY? (Hint: Start by finding the after-tax cost of debt in CAD and then finding the JPY equivalent.)
Instructions:
Cost of debt is %.(Enter your response as a percent rounded to two decimal places.)