How much will the abc holdings pay in domestic currency

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A firm ABC CC wants to undertake an investment project which costs N$500,000, which it wants to finance through a bank loan. The project has a 90 percent chance of success. If the project succeeds the firm will make a cash flow of N$1,200,000 after a year. If it fails the firm will get a cash flow of N$300,000 and will be required to pay back only half of the borrowed amount. The bank has a required rate return of 15%.

Problem (a) How much will the ABC Holdings receive from ABC Corporation if it hedges with a forward contract?

Problem (b) How much will the ABC Holdings pay in domestic currency for its imports if it hedges with a forward contract?

Reference no: EM132979445

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