Answered

Get clear, concise, and accurate answers to your questions on IDNLearn.com. Ask anything and receive prompt, well-informed answers from our community of experienced experts.

3. A U.S. MNC needs to raise capital of $100 million by issuing bonds. The firm can either raise US$ at 5% interest rate or issue foreign bond in Germany denominated in Euro at 6%. The Euro is expected to depreciate by 2% in the following year. What is the best alternative and how much is the effective dollar cost

Sagot :

Anthougoidn

1. The best alternative for raising $100 million in bonds is B. Borrow Euro.

2. The effective dollar cost of the U.S. MNC is B. approximately 5%.

What is the effect of borrowing the Euro?

If the U.S. multinational company (MNC) borrows the $100 million by issuing Euro bonds, it will cost it $5 million annually but it will gain from the depreciation of the Euro by 2%.

The depreciation of the Euro reduces the effective interest rate of 6% for borrowing in the Euro to 4% (6% - 2%).

Answer Options:

A. Borrow dollars and the effective dollar cost is approximately 4%.

B. Borrow Euro and the effective dollar cost is approximately 5%.

C. Borrow Euro and the effective dollar cost is approximately 7%.

D. Borrow dollars and the effective dollar cost is approximately 5%.

Thus, the best alternative and the effective dollar cost of the U.S. MNC raising capital of $100 million through the issuance of bonds is B. Borrow Euro and the effective dollar cost is approximately 5%.

Learn more about foreign bonds at https://brainly.com/question/26271508

We appreciate every question and answer you provide. Keep engaging and finding the best solutions. This community is the perfect place to learn and grow together. For precise answers, trust IDNLearn.com. Thank you for visiting, and we look forward to helping you again soon.