Future exchange rates to be to motivate the use of option

Assignment Help Financial Management

Reference no: EM131532399

Micca Metals, Inc. is a specialty materials and metals company located in Detroit. The company specializes in specific precious metals and materials that are used in a variety of pigment applications. Micca just purchased a shipment of phosphates from Australia for AUD6,000,000 payable in six months. Six month at-the money call options on AUD6,000,000 at an exercise price of USD0.9000/AUD1 (AUD1.1111/USD1) are available at a premium of 3%. Use a diagram to illustrate and explain Micca Metals’ position should it use such an option. What is the break-even exchange rate? What is the maximum amount that Micca Metals could realize if the exchange rate moves in their favor? What is the maximum amount they could realize if the exchange rate moves against them? What would Micca Metals expect future exchange rates to be to motivate the use of this option?

Reference no: EM131532399

Questions Cloud

Find the cost of unlevered equity for hp : HP and Dell are companies in the exact same business. Find the cost of unlevered equity for HP. What is HP’s new WACC?

Should the existing building be demolished : Should the existing building be demolished if there are no demolition costs? Should the existing building be demolished if demolitioon costs are $10,000.

Incremental free cash flows should be included to account : When evaluating the proposed? expansion, what incremental free cash flows should be included to account for the need to accelerate the purchase of tank? cars?

Portfolio with securities-expected return of portfolio : You hold a portfolio with the securities. Calculate the expected return of portfolio.

Future exchange rates to be to motivate the use of option : What is the break-even exchange rate? What would Micca Metals expect future exchange rates to be to motivate the use of this option?

Financed only by debt and common stock : A company (financed only by debt and common stock) changes its capital structure from 20% Debt to Assets to 80% Debt to Assets.

How the breakeven point of firms with high fixed costs : Explain how the breakeven point of firms with high fixed costs relative to low variable cost differs from firms with relatively low fixed costs

Calculate the incremental irr for the cash flows : Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Calculate incremental IRR for the cash flow.

Market the game as traditional board game : Mario Brothers, a game manufacturer, has a new idea for an adventure game. What is the payback period for each project? What is the incremental IRR?

User Account

All Pages