1. Brachman Builders is a large international construction firm that wants to raise up to $30 million to finance expansion. Brachman desires to maintain a capital structure that is 50% debt and 50% equity. Brachman can finance in the domestic and international markets at the rates listed in the following table. The following cost figures show the component costs, each, of debt and equity if raised half by equity and half by debt.
Cost of Domesic Equity 10%
Cost of Domesic Debt 8%
Cost of European Equity 12%
Cost European Debt 6%
What is the lowest possible average cost of capital for Brachman if the firm raises $30 million, maintains their desired capital structure and they are in a 30% tax bracket?
7.00%
8.10%
4.90%
7.10%
2. ABC Inc. borrows 100m JPY when JPY spot rate is JPY120/$. The JPY interest rate for the loan is 3%. One year later when ABC pays back the JPY principal and interest, the exchange rate is JPY 95/$. What is the dollar cost of ABC''s JPY loan?
3%
30.1%
-18.46%
None of the above
3. A Chinese MNC needs US$25,000,000 for one year to finance working capital. The company has two alternatives for borrowing:
a. Borrow US$25,000,000 in Eurodollars in London at 6.25% per annum
b. Borrow RMB 205,000,000 in Shanghai at 8.00% per annum, and exchange these RMB at the present exchange rate of RMB8.2/$ for U.S. dollars.
At what ending exchange rate would Chinese MNC be indifferent between borrowing U.S. dollars and borrowing RMB?
RMB 8.2/$
RMB 8.9/$
RMB 8.067/$
RMB 8.335/$
4. TropiKana Inc. has just borrowed EUR 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the EU interest rate is 7.00% per year and the Euro depreciates against the dollar from $1.15 per EUR at the time the loan was made to $1.10 per EUR at the end of the first year, how much interest and principle will TropiKana pay at the end of the first year if they repay the entire loan plus interest (rounded)?
$972,727
$1,177,000
>972,727
$1,070,000