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A) show the value of the transaction today in US$
B) provide an example exchange rate for a potential depreciation of the US$ and show the effect of this depreciated US$ on the value of the transaction in US$
C) provide an example exchange rate for a potential appreciation of the US$ and show the effect of this appreciated US$ on the value of the transaction in US$
D) determine the value of a forward contract for this transaction in US$ using present value discounting
E) determine the value of asset-liability hedging for this transaction in US$
F) make a recommendation of whether the company should use a forward contract or asset-liability hedging in order to protect itself from foreign exchange risk
SCENARIO 2
Up-in-the-Air Sports in the United States has just bought Canadian$ 6,000,000 of extreme sports protective gear from Protective Wear of Thunder Bay, Ontario Canada. Up-in-the-Air Sports will make the payment for this sale in one month and would like to guard itself against movements in the foreign exchange rate between the US$ and the Canadian$. The current spot exchange rate is US$ .7986Canadian$ and a one month forward contract is US$ .8005/Canadian$. The current annual deposit rate in Canada is .25% per annum and the prime annual lending rate is .75% per annum. Up-in-the-Air Sports’ cost of capital is 12.25% per annum.
A company is evaluating the replacement of an old machine with a new one. The company’s marginal federal-plus-state tax rate is 40%, and its WACC is 12%.
Sia Dance Studio has annual cash dividend policy that raises dividend each year by 2%. company will be in business for 40 years with no liquidating dividend.
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Selected yearend financial statements of Cabot Corporation follow, all sales were on credit selected balance sheet amounts at December 31, 2012 were inventory; $52,900; total assets; 229,00; common stock 105,000 and retains earning 52, 548.
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