Luther Industries,a Canadian Firm,is Considering an Investment in Japan

question 113

Multiple Choice

Luther Industries,a Canadian 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_CAD = 5.5% and r_JPY = 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%
• E)9.3%

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Definitions:

Monopsonist

A market scenario characterized by the presence of a single buyer and multiple sellers, granting significant pricing power to the buyer.

Marginal Cost

The additional expense incurred from manufacturing an extra unit of a product or service.

Wage Rate

The amount of compensation an employee receives per unit of time or per task performed, often expressed per hour or piece.

Monopsonist

A market situation in which there is only one buyer for a product or service.