The dollar cost of debt for John Galt Industries is 8.0%. The firm faces a tax rate of 40% on all income, no matter where it is earned. Galt needs to know its Yen cost of debt. The risk-free interest rates on dollars and yen are r% = 6% and r¥ = 2%, respectively. Galt is willing to assume that capital markets are internationally integrated and that its free cash flows are uncorrelated with the
yen-dollar spot rate. Galt's after-tax cost of debt in yen is closest to:
A) 0.9%
B) 2.0%
C) 3.9%
D) 4.8%
A
Business
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