AMD needs $50 million for 1 year to finance its working capital. The company has two borrowing alternatives: (i) to borrow the full amount in Eurodollars in London at 3.20 % per annum (ii) to borrow HK$ 390 million in Hong Kong at 1.01 % per annum and exchange these HK$ at the then present exchange rate of HK$ 7.8000 per I USD. Calculate the ending exchange rate where AMD would be indifferent between borrowing in USD and HK$.
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
AMD needs $50 million for 1 year to finance its working capital. The company has two borrowing alternatives:
(i) to borrow the full amount in Eurodollars in London at 3.20 % per annum
(ii) to borrow HK$ 390 million in Hong Kong at 1.01 % per annum and exchange these HK$ at the then present exchange rate of HK$ 7.8000 per I USD.
Calculate the ending exchange rate where AMD would be indifferent between borrowing in USD and HK$.
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