20. Cost of Foreign Debt versus Equity. Carazona, Inc., is a U.S. ﬁrm that has a large subsidiary in Indone- sia. It wants to ﬁnance the subsidiary’s operations in Indonesia. However, the cost of debt is currently about 30 percent there for ﬁrms like Carazona or government agencies that have a very strong credit rating. A consultant suggests to Carazona that it should use equity ﬁnancing there to avoid the high interest expense. He suggests that since Carazona’s cost of equity in the United States is about 14 per- cent, the Indonesian investors should be satisﬁed with a return of about 14 percent as well. Clearly explain why the consultant’s advice is not logical. That is, explain why Carazona’s cost of equity in Indonesia would not be less than Carazona’s cost of debt in Indonesia.