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a) Microsoft, whose global sales are generally dollar denominated, finds it has excess cash of $750,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 4.5% or a three-year Euro denominated deposit paying 5.5% since it expects the Euro to depreciate 1% per annum against the dollar over the next three years. Using cash flow analysis, determine in which currency Microsoft should invest. Be sure to show your complete calculations of the annual return and conversion of Euro back to dollars at the end of the three-year term. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rates. Would your answer change if Microsoft revised its outlook for the Euro to depreciate 1.25% per year?
b) British Oxygen whose global sales are generally dollar denominated needs to borrow $50,000,000 for working capital and intends using a 5-year multi-currency revolving credit. It can borrow in US$ at 8.5% p.a. or in SFr at 5.5% p.a. However, it expects the SFr to appreciate on average 4% p.a. over the next five years. Using a cash-flow analysis determine in which currency BOC should borrow. Would your answer change if BOC could issue SFr commercial paper supported by the revolving credit at 3.5%?
A collateral bond with a face value of $5,000 was purchased by an investor for $4,100. The bond was due in 11 years, and it had a bond interest rate of 4% per year, payable semi-annually. If the investor kept the bond to maturity.
Per capita GDP in country A and country B is $10,000. Country A's government creates policies and institutions that result in economic growth of 1.5% per year. Country B's government creates policies and institutions that result in 3% economic gro..
The ABC Company has a large order for special uniforms to be used in an urgent operation. Working the normal two shifts of 40 hours each per week, the ABC production process usually produces 2, 500 uniforms per week at a standard cost of $120 each..
A useful piece of depreciable property was bought for $20,000. If it has a useful life of 10 years and a salvage value of $5,000, how much will it be depreciated in the 9th year, using the 150% declining balance schedule
Suppose that 3 countries who form a cartel agreed to divide the oil market equally. Demand for oil is given by P=50-.1Q where P is the price of oil in dollars per barrel and Q is the Quantity in thousands of barrels per day.
A-1 Box Company is planning to lease a computer system that will cost (with service) $15000 in year 1, $16500 in year 2, and amounts increasing by 10% each year thereafter. Assume the lease payments must be made at the beginning of the year.
Production engineers at Sinotron believe that a modified layout on its assembly lines might increase average productivity (measured in the number of untis produced per hour). However, before the engineers are ready to install the revised layout o..
a) what is the marginal opportunity cost of producing the second unit of clothing b) what is the total opportunity cost of producing the second uit of closthing c) what is the marginal opportunity cost of producing the third unit of clothing
Discuss the signs and magnitudes of the estimated coefficients and their comparisons to predicted or theoretical signs and magnitudes. What have we learned?
Household spending is given by the following equation: C = $100 + 0.70Yd and Intended Investment = $125. (a) Calculate the equilibrium level of income in the economy, and explain why this is the case. (b) If the current level of income is $500 calcul..
Open Economy S = I In an open economy suppose that GDP is $12 trillion. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion and imports are $3 trillion.
The inverse market demand in a homogenous-product Cournot duopoly is P = 100 - 2(Q1 + Q2) and costs are C1(Q1) = 12Q1 and C2(Q2) = 20Q2. a. Determine the reaction function for each firm. b. Calculate each firm's equilibrium output.
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