Here is the missing part of the question:
[tex]... its \ current \ level \ of \ \$0.03 \ to \ \$0.032 \ ,\$0.034 \, and \ \$0.035\ in \ years\ 1, \ 2 , \ 3 , \ respectively,[/tex]
[tex]\ what \ is \ the financing \ cost \ of \ these \ bonds?[/tex]
Answer:
23.39%
Explanation:
From the given information, we learned that the company has raised the amount in rubies, thus there is a need to convert dollars to rubles to be able to pay back the required obligations. Based on the exchange rates, the actual cost of financing would be the IRR of the dollar cash flow that the company will address.
Using the EXCEL FORMULA to compute the actual cost of financing; we have:
A B C D E
Coupon 17%
Year 0 1 2 3
Cashflow in
rubles 5,000,000 5000000*17% 5000000*17% 5000000+850
= 850000 = 850000 000
= 5850000
Exchange $0.30 $0.032 $0.034 $0.035
rate
(per ruble)
5,000,000 5,000,000 5,000,000 5,000,000
Cash flow × 0.03 × 0.032 × 0.034 × 0.035
in dollars = $150000.00 27200.00 28900.00 204750.00
IRR 23.39%
