Use the Information for the Question(s) Below

question 91

Multiple Choice

Use the information for the question(s) below.
The current spot exchange rate, S, is $1.8862/£. Suppose that the yield curve in both countries is flat. The risk-free rate on dollars, r_$, is 5.35% and the risk-free interest rate on pounds, r_£, is 4.80%.
-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:

Dopamine

A neurotransmitter in the brain associated with pleasure, movement, and motivation.

Neurons

The basic working units of the brain and nervous system responsible for receiving sensory input, processing information, and transmitting signals.

Myelin Sheaths

Insulating layers that form around nerves, including those in the brain and spinal cord, which enable faster transmission of electrical impulses.

Sympathetic Nervous System

A part of the autonomic nervous system that activates the body's fight-or-flight response during perceived threats.