Change in Cost of Capital
Response to the following problem:
Assume that Naperville Co. will use equity to finance a project in Switzerland, that Lombard Co. will rely on a dollardenominated loan to finance a project in Switzerland, and that Addison Co. will rely on a Swiss franc- denominated loan to finance a project in Switzerland. The firms will arrange their financing in 1 month. This week, the U.S. risk-free long-term interest rate declined but interest rates in Switzerland did not change. Do you think the estimated cost of capital for the projects by each of these three U.S. firms increased, decreased, or remained unchanged? Explain