Suppose the domestic cost of capital for an Australian-based company is 8%. Also, the Australian interest rate is 4% and the European interest rate is 7%. What is the foreign denominated cost of capital for the company?

Question

Quizplus · Accepted Answer

Foreign denominated cost of capital can be calculated using the following formula:

Foreign denominated cost of capital = Domestic cost of capital + (Foreign interest rate - Domestic interest rate) x (1 - Tax rate)

Here, the domestic cost of capital is 8%, the Australian interest rate is 4% and the European interest rate is 7%.

So, the foreign denominated cost of capital = 8% + (7% - 4%) x (1 - 0) = 11.12%

Suppose the Domestic Cost of Capital for an Australian-Based Company