Luther Industries,a U

question 44

Multiple Choice

Luther Industries,a U.S.firm,is considering an investment in Japan.The dollar cost of equity for Luther is 12%.The risk-free interest rates on dollars and yen are r_$ = 5.5% and r_¥ = 1.5% respectively.Luther industries is willing to assume that capital markets are internationally integrated.Luther Industries needs to know the comparable cost of equity in Japanese yen for a project with free cash flows that are uncorrelated with spot exchange rates.The yen cost of equity for Luther Industries is closest to:

• A)14.0%
• B)12.3%
• C)7.8%
• D)18.5%

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Definitions:

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process or providing a service, used as a basis for allocating labor costs.

Fixed Manufacturing Overhead

Costs related to the production process that do not vary with the volume of production, such as rent, depreciation, and salaries of permanent staff.

Variable Overhead Rate

The rate at which variable overhead costs are allocated to production, based on a predetermined base such as direct labor hours or machine hours.

Direct Labor-Hours

The total hours worked by employees directly involved in the production process.