Reference no: EM132816250

1. Assume the following capital structure and cost of capital for A Company. Compute the Weight Average Cost of Capital considering all four sources of funds.

                                                                           Cost (%)

Mortgage Bonds ($1,000 par) $20,000,000          5.14

Preferred Stock ($100 par) 5,000,000                 13.40

Common Stock ($40 par) 20,000,000                    7.11

Retained Earnings 5,000,000                              16.00

2. Based on the results of your computation in problem #1, what financing mix would you prefer? Illustrate your answer.

3. On October 1, a Multinational Corporation (MNC) received an order from a Japanese customer for 2,500,000 Yen to be paid upon receipt of the goods, scheduled for December 1. The rates for $1 US are as follows:

Exchange Rates for $1 for Yen

Spot rate, October 1 83

Forward rate, December 1 82

Spot rate, December 1 81

Problem a) Calculate what MNC would receive from the Japanese customer in US dollars using the spot rate at the time of the order.

Problem b) Calculate what MNC would receive from the Japanese customer in US dollars using the spot rate at the time of payment.

Problem c) Calculate the amount that MNC expects to receive on December 1 if MNC's policy is to hedge foreign currency transactions.

Problem d) Briefly discuss implications.