Maryland Light, a U.S. light manufacturer, is considering an investment in Japan
ID: 2796217 • Letter: M
Question
Maryland Light, a U.S. light manufacturer, is considering an investment in Japan. The dollar cost of equity for Maryland is 13.84%. You are in the corporate treasury department, and you need to know the comparable cost of equity in Japanese yen for a pro ect with ree cash flows that are unco elated with spot exchange ates. The k free interest ates on dollars and yen are -4.11% and #0.69% espect e y. Maryland is w lng to assume that capital markets are n ernational y integrated. What is the yen cost of equity? The yen cost of equity is | %. (Round to three decimal places.)Explanation / Answer
Answer:
Risk free rate of dollar=4.11%
Risk free rate of Yen=0.69%
Dollar cost of equity =13.84%
Yen cost of equity would be= Risk free rate of yen+( cost of equity of dollar- cost of risk free rate)
=0.69%+(13.84%-4.11%)
=10.42%