Question

Calculate the following: Show all work

1) If a U.S.-based firm borrows €1,500,000 for one year at 5.00% and during the year the euro depreciates from an initial rate of $1.30/€ to $1.10/€, what is the dollar cost of this debt?

Your answer: ________________% (Keep two decimals; Do include the minus sign “-” if your answer is a negative number.)

2) If a U.S.-based firm borrows €1,500,000 for one year at 5.00% and during the year the euro depreciates from an initial rate of $1.30/€ to $1.10/€, what is the foreign exchange transaction cost for the firm?

Your answer: ________________% (Keep two decimals; Do include the minus sign “-” if your answer is a negative number.)

3) If a Brazil-based firm borrows $2 million for two years at 5.00% and during the period the dollar appreciates from R$2.00/$ to R$2.80/$, what is the annualized R$ cost of this debt?

Your answer: ________________% (Keep two decimals; Do include the minus sign “-” if your answer is a negative number.)

4) Portland Forest Products Inc. has a cost of debt of 8%, the risk-free interest rate is 3.5% and the expected return on the market portfolio is 8.5%. Portland’s tax rate is 30% and its optimal capital structure is 40% debt and 60% equity. If Portland has a beta of 1.2, what is the firm’s weighted average cost of capital?

a. 7.34% b. 10.46% c. 7.94% d. 8.90%

Answer #1

1. Ans. is -11.15%

1.Assume a US-based multinational borrows CHF 1,500,000 for 1
year. The borrowing interest rate is i = 5% (EAR). The current spot
rate S0(CHF/USD) is 1.5. If the CHF appreciates against the USD
during the year, and the future spot rate one year from now is
estimated at S1(CHF/USD) = 1.44, what is the dollar (effective)
cost of debt during the year?
2. What if the CHF 1,500,000 loan is to be repaid in 2 years,
with interest paid annually...

McDougan Associates? (U.S.). McDougan?
Associates, a? U.S.-based investment? partnership, borrows
euro€85,000,000 at a time when the exchange rate is
?$1.3304?/euro€. The entire principal is to be repaid in three?
years, and interest is 6.350?% per? annum, paid annually in euros.
The euro is expected to depreciate? vis-à-vis the dollar at 3.1?%
per annum. What is the effective cost of this loan for?
McDougan?
Complete the following table to calculate the dollar cost of
the? euro-denominated debt for years 0 through...

An American firm borrows Euro 1 million for one year at an
interest rate of 2.5%. The Euro is expected to appreciate by 2%
over the life of the loan. The American's effective cost of
borrowing is approximately:
a. 2.5%
b. 4.5%
c. 2.0%
d. .5%

McDougan Associates? (U.S.). McDougan?
Associates, a? U.S.-based investment? partnership, borrows
euro€70,000,000 at a time when the exchange rate is
1.3412?/euro€. The entire principal is to be repaid in three?
years, and interest is 6.550?% per? annum, paid annually in euros.
The euro is expected to depreciate? vis-à-vis the dollar at 3.1?%
per annum. What is the effective cost of this loan for?
McDougan?
Complete the following table to calculate the dollar cost of
the? euro-denominated debt for years 0 through...

Refer to the information below for Questions 17 to 20. Assume
that Total SA, a world leading oil and gas company headquartered in
in La defense, France, borrows SFr 100,000,000 for ten years
commencing January 1, 2015 for its new exploration project.
According to the terms of the loan, Total SA pays interest at the
end of each year and pays back the principle at the end of ten
years. On the borrowing date, the relevant financial information
is: Spot...

Please show the work
Allied Manufacturing has total assets of $4 million, financed
with 50% debt and 50% equity. The cost of debt is 6% before taxes
and the cost of equity capital is 11%. The company has EBIT of
$300,000 and a tax rate of 30%. Estimate Allied’s residual income.
(Enter your answer to the nearest $1,000. Leave the $ sign off. In
other words, if your answer is $55,550, enter 56 for your answer.
If your answer is...

Assume that Total SA, a world leading oil and gas company
headquartered in in La defense, France,borrows SFr 100,000,000 for
ten years commencing January 1, 2015 for its new exploration
project. According to the terms of the loan, Total SA pays interest
at the end of each year and pays back the principle at the end of
ten years. On the borrowing date, the relevant financial
information is:
Spot = SFr1.20/€i€ = 5.0%
iSFr = 3.0%
Suppose that on December...

Your firm is contemplating the purchase of a new $794,500
computer-based order entry system. The system will be depreciated
straight-line to zero over its seven-year life. It will be worth
$59,000 at the end of that time. You will be able to reduce working
capital by $54,000 at the beginning of the project. Working capital
will revert back to normal at the end of the project. Assume the
tax rate is 30 percent.
Suppose your required return on the project...

Apex, Inc. is a U.S.-based firm investing in a two-year project
in Mexico. The present exchange rate is 16 Mexican pesos per U.S.
dollar. It is estimated that Mexico’s currency will be devalued in
the international market at an average 2.7 % per year relative to
the U.S. dollar over the next several years. The estimated
before-tax net cash flow (in pesos) of the project is a follows:
End of Year Net Cash Flow (pesos) 0 - 900,000 1 480,000...

Apex, Inc. is a U.S.-based firm investing in a two-year project
in Mexico. The present exchange rate is 15 Mexican pesos per U.S.
dollar. It is estimated that Mexico’s currency will be devalued in
the international market at an average 2.1 % per year relative to
the U.S. dollar over the next several years. The estimated
before-tax net cash flow (in pesos) of the project is a
follows:
End
of Year Net Cash Flow (pesos)
0 -
900,000
1
480,000
2 ...

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