Monday, September 13, 2010

A U.S. company needs to borrow $100 million for a period of seven years. It can issue dollar debt at 7%or3%yen

A U.S. company needs to borrow $100 million for a period of seven years. It can issue dollar debt at 7% or yen debt at 3%.

Suppose the company is a multinational firm with sales in the United States and inputs purchased in Japan. How should this affect its financing choice?

(Assume the difference in interest rates is due to inflation in the U.S.)