Denim Industries can borrow its needed financing for expansion using one of two foreign lending facilities....

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Denim Industries can borrow its needed financing for expansion using one of two foreign lending facilities. It can borrow at

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Answer 1

Answer #1

Solution :-

Effective Annual Rate in Mexican Pesos = Nominal Rate * ( 1 - Dep Rate )

= 11% * ( 1 - 0.0917 )

= 9.99%

Effective Annual Rate in Canadian Dollar = Nominal Rate * ( 1 - Dep Rate )

= 4% * ( 1 + 0.02 )

= 4.08%

Loan in Canadian Dollar has lower EAR

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Answer 2

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