Examine three methods available under internal hedging

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Post-A-Parcel Sdn Bhd. has decided to buy a fleet of new light-duty trucks. The purchase will cost the  company RM800,000, and the light-duty trucks would each have a useful life of ten years with a total trade-in value of RM150,000 at the end of the tenth year.The company could purchase the trucks for cash, using bank loan facilities for which the current rate of interest is 8% before tax. If the trucks are purchased now, the company will be able to claim a taxdepreciation allowance of 100% in Year 1.

Alternatively, the company could lease the trucks that would entail the payment of RM125,000 at theend of each year for the next ten years. The lease payments are fully tax-allowable. The tax rate is 25%. All the tax payables and tax reliefs are a year delayed.

Problem 1: Assume that Post-A-Parcel has delivery and logistics operations not only in Malaysia but in Singapore and Thailand as well, while being headquartered in Kuala Lumpur. In managing its transaction risks due to a lack of a qualified team of financial analysts, the company's corporate treasurer has resorted to internal hedging techniques without engaging external currencies or the money market. Critically examine THREE (3) methods available under internal hedging techniques that the company's corporate treasurer can use as tools to manage transaction risks.

 

Reference no: EM133006268

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