Fin 516 Week 7 Homework Problem Essay

616 Words Jul 20th, 2016 3 Pages
FIN 516 Week 7 Homework Problem

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Problem 31-1 on Exchange Rates Based on Chapter 31 International Corporate Finance
(Excel file included)
You are a U.S. investor who is trying to calculate the present value of a €5 million cash inflow that will occur 1 year in the future. The spot exchange rate is S = $1.25/€ and the forward rate is F1 = $1.215/€. You estimate that the appropriate dollar discount rate for this cash flow is 4% and the appropriate euro discount rate is 7%.
a) What is the present value of the €5 million cash inflow computed by first discounting the euro and then converting it into dollars?
b) What is the present value of the €5 million cash inflow
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The firm faces a tax rate of 30% on all income, no matter where it is earned. Managers in the firm need to know its yen cost of debt because they are considering launching a new bond issue in Tokyo to raise money for a new investment there.
The risk-free interest rates on dollars and yen are r$ = 5% and r¥ = 1%, respectively. Coval Consulting is willing to assume that capital markets are internationally integrated and that its free cash flows are uncorrelated with the yen-dollar spot rate.
What is Coval Consulting’s after-tax cost of debt in yen? (Hint: Start by finding the after-tax cost of debt in dollars and then find the yen equivalent.)
Problem 31-12 on Credit and Exchange Rate Risk Based on Chapter 31 International Corporate Finance
Suppose the interest on Russian government bonds is 7.5%, and the current exchange rate is 28 rubles per dollar. If the forward exchange rate is 28.5 rubles per dollar, and the current U.S. risk-free interest rate is 4.5%, what is the implied credit spread for Russian government bonds?
Problem 30-9 on Forward Market Hedge Based on Chapter 30 Risk Management
(Excel file included)
You are a broker for frozen seafood products for Choyce Products. You just signed a deal with a Belgian distributor. Under the terms of the contract, in 1 year, you will deliver 4000 kg of frozen king crab for 100,000 euros. Your cost for obtaining the king crab is $110,000. All cash flows occur in exactly 1

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