1. Showing calculation detail in Excel Format (with formulas posted in Excel Cells) is a must for earning any credit for homework assignments. As an alternative to an Excel Spreadsheet, you can and should also use the Worksheets provided for some of the problems in Doc Sharing. These Worksheets will save you a lot of time.
2. Please Note: Do not post a narrative of the calculation detail, instead you must post the calculation formulas in the Excel cells.
Problem 31-7 on Eurobonds versus Domestic Bondsbased on Chapter 31 International Corporate Finance
The dollar cost of debt for Coval Consulting, a U.S. research firm, is 7.5%. The firm faces a tax rate of 30% on all income, no matter where it is earned. Managers in the firm need to know its yen 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 dollars and yen are r$ = 5% and r¥ = 1%, respectively. Coval Consulting is willing to assume that capital markets are internationally integrated and that its free cash flows are uncorrelated with the yen-dollar spot rate.
What is Coval Consulting's after-tax cost of debt in yen? (Hint: Start by finding the after-tax cost of debt in dollars and then find the yen equivalent.)
Problem 31-12 on Credit & Exchange Rate Risk based on Chapter 31 International Corporate Finance
Suppose the interest on Russian government bonds is 7.5%, and the current exchange rate is 28 rubles per dollar. If the forward exchange rate is 28.5 rubles per dollar, and the current U.S. risk-free interest rate is 4.5%, what is the implied credit spread for Russian government bonds?