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A German company manufactures a specialized piece of manufacturing equipment and leases it to a U.K. enterprise. The lease calls for five end-of-year payments of £1 million. The German firm spent €3.5 million to produce the equipment, which is expected to have no salvage value after five years.
The current spot rate is €1.5/£. The risk-free interest rate in Germany is 3 percent, and in the United Kingdom it is 5 percent. The German firm reasons that the appropriate (German) discount rate for this investment is 7 percent. Calculate the NPV of this investment in two ways.
a. First, convert all cash flows to pounds, and discount at an appropriate (U.K.) cost of capital. Convert the resulting NPV to euros at the spot rate.
b. Second, calculate forward rates for each year, convert the pound- denominated cash flows into euros using those rates, and discount at the German cost of capital. Verify that the NPV obtained from this approach matches (except perhaps for small rounding errors) that obtained in part (a).
Many experts predicted that small, local ISPs would disappear as regional and national ISPs began offering local access. This hasn't happened. Why?
Cost of capital is- the average cost of the firm's assets, the hurdle rate set by the board of directors, the coupon rate of debt
Company has an opportunity to make an investment with the estimated after tax cash flows
Two primary contractual hedges are forward contracts and options. Please define and explain each of the above hedges. (B) Assume the following: LC Exposure = 10,000; Spot Rate = $1.00/LC1.00; 1 Year Forward = $0.98/LC1.00; 1 Year Strike Price = $0.97..
Your broker commented that well-managed firms are better investments than poorly managed firms. As evidence, your broker cited a recent studying examining 100 small manufacturing firms that eight years earlier had been listed in an industry magazine ..
Compose and complete the following balance sheet and income statement for this start-up firm, given the following: Debt Ratio = 95%, Quick Ratio = .9, Asset Utilization = 1.9, AR Days = 40
You have just been assigned as your organization's training manager and must conduct a new needs assessment for a new project. Describe the method you would use.
A zero coupon bond is a bond that pays no interest and is offered (and initially sells) below par. These bonds provide compensation to investors in the form of capital appreciation.
Would you recommend borrowing from a bank at an 18 percent annual interest rate to take advantage of the cash discount offer? Explain your answer.
case studyyou are the chief accountant of everest manufacturers. everest manufactures a wide range of building and
You buy a share of The Ludwig Corporation stock for $20.10. You expect it to pay dividends of $1.08, $1.13, and $1.1823 in Years 1, 2, and 3, respectively, and you expect to sell it at a price of $27.49 at the end of 3 years. Calculate the growth rat..
Your firm is planning to issue preferred stock. The stock is expected to sell for $97.39 a share and will have a $100 par value on which the firm will pay a 14.7% divident. What is the cost of capital to the firm for the preferred stock?
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