IBM wishes to raise $1 billion and is trying to decide between a domestic dollar bond issue and a Eurobond issue. The U.S. bond can be issued at a coupon of 6.75 percent, paid quarterly, with underwriting and other expenses totaling 0.95 percent of the issue size. The Eurobond would cost only 0.55 percent to issue but would bear a semi-annual coupon of 6.88 percent. Both issues would mature in ten years.
Assuming all else is equal, which is the least expensive issue for IBM?
And what other factors might IBM want to consider before deciding which bond to issue?