Analyze what the implications would be to the firm's capital structure if the company took on debt denominated in some currency other than U.S. dollars. In particular analyze the following:
Problem 1.) What risks will the company incur if it increases its long-term debt from US$100 million to US$150 million by taking on 40 million in euro debt based on current exchange rates of 0.80 euros to US$1? (The euro debt will pay a 7% coupon.)
Problem 2.) How would changes in exchange rates between the euro and U.S. dollar impact the firm's capital structure and interest payments on the euros?
Assume the company's equity will remain at US$150 million and will not change when the euro debt is issued. I need to chart (graph) how exchange rates will impact the capital structure of the firm and interest payments on the euro-denominated debt.
Use Microsoft Excel to graph the capital structure of the firm in U.S. dollars based on changes in exchange rates. Use two scenarios: U.S. dollar appreciation against the euro and U.S. dollar depreciation against the euro. For capital structure, graph to total capital structure, debt, and equity.