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Long term debt financing.
Oregon Co. just agreed to a long-term deal in which it will export products to Japan. It needs to finance the production of the products it will export. The products will be denominated in dollars. The prevailing long-term interest rate is 5 percent versus 3 percent in Japan. Assume that interest rate parity exists and that Oregon Co. believes that the International Fisher effect holds.
a) Should Oregon Co. finance its production with yen and leave itself open to exchange rate risk? explain.
b) Should Oregon Co. finance its production with yen and simultaneously engage in forward contracts to hedge its exposure to exchange rate risk? explain
c) How could Oregon Co. achieve low-cost financing while eliminating its exposure to exchange rate risk? explain.
A common fallacy in stock market investing is assuming that a good company makes a good investment. Suppose we define a “good company” as one that has experienced rapid growth in the recent past. Explain the reasons why shares of “good companies” may..
Should a public corporation emphasize maximizing profit or maximizing shareholder wealth? Is it ethical for a company to donate to charity? If yes, can this be in conflict with the first question?
Burnbraid Co. recently reported operating income of $5.95 million, depreciation of $1.20 million, and had a tax rate of 40%. The firm's expenditures on fixed assets and net operating working capital totaled $0.6 million. How much was its free cash fl..
The Operating Budget-Describe how you would perform a Cost Analysis. (Title this section Cost Analysis)
Consider an economy with a large number of potential online game providers. The provider lacks the funds to start their projects. There is an equal number of investors who have the funds but no desire to create online games. Compute the expected tot..
If Brian enters into a currency swap contract, Explain how this helps Mega Funds from facing currency risk.
Your firm is contemplating the purchase of a new $605,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. If the tax rate is 34 percent, what is the IRR for this project?
At time 0, the share price of a stock was $85. At that time, a call option on a share of stock with a strike price of $95 expiring 6 months later had a premium $2.00. Risk free interest is 4% annual effective. Determine the payoff and the profit on t..
Consider the following options portfolio. You write a call option on IBM with exercise price of $85. The option premium is $0.95 per share. You write a put option on IBM with exercise price of $80. The put option premium is $0.55 per share. What is t..
Blue water system is analyzing a project with the following cash flows. use the reinvestment approach and calculate the modified internal rate or return if the discount rate is 15%?
Blue Water Homes have 8 percent bonds outstanding that mature in 13 years. What is the yield to call if the current price is equal to 103.25 percent of par?
A stock has had returns of 34 percent, 18 percent, 29 percent, -6 percent, 16 percent, and -48 percent over the last six years. What are the arithmetic and geometric returns for the stock?
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