Reference no: EM132525422
GBA Company wishes to raise $5,000,000 with debt financing. The funds will be repaid with interest in 1 year. The treasurer of GBA Company is considering three sources:
i. Borrow USD from Citibank at 1.50%
ii. Borrow EUR from Deutsche Bank at 3.00%
iii. Borrow GBP from Barclays at 4.00%
If the company borrows in euros or British pounds, it will not cover the foreign exchange risk; that is, it will change foreign currency for dollars at today's spot rate and buy foreign currency back 1 year later at the spot rate prevailing then. The GBA Company has no operations in Europe.
A representative of GBA contacts a local academic to provide projections of the spot rates 1 year in the future. The academic comes up with the following table:
Currency
Spot Rate
Projected Rate 1 Year in the
Future
USD/GBP
1.5
1.55
USD/EUR
0.95
0.85
a. What is the expected interest rate cost for the loans in EUR and GBP?
b. What are the projected USD/GBP rate and USD/EUR rate for which the expected interest costs would be the same for the three loans?
c. Should the company borrow in the currency with the lowest interest rate cost? Why or why not? Would your answer change if GBA did generate cash flows in the United Kingdom and continental Europe?
|
Type of phenomenon still happen in the market
: What happened, why did it happen, and what were the results? Does this type of phenomenon still happen in the market?
|
|
What is Beerbos cost of goods sold
: During 2020, 2,500,000 units of ore were extracted and 2,100,000 of these units were sold. What is Beerbo's cost of goods sold in 2020
|
|
Compute the maximum total deductible contribution
: Compute the maximum total deductible contribution to a traditional IRA for 2019. Juan, age 41, earns a salary of $28,000,Abby, age 29, earned income of $25,000
|
|
What was the arithmetic return for the 10-year period
: Here are the total returns for the S&P500 for the first ten years of this century. Assume you invested $1 in the S&P500 on January 1, 2001. Your fir
|
|
How to borrow usd from citibank
: GBA Company wishes to raise $5,000,000 with debt financing. The funds will be repaid with interest in 1 year. The treasurer of GBA Company is considering three
|
|
What would be projected cash flow for year
: What would be projected cash flow for year 5? What would be projected cash flow for year 0? Fred F. Stone wants to increase the production rate
|
|
Prove that the interest rate implicit in the lease
: a) Prove that the interest rate implicit in the lease is 10 percent.
|
|
State why believe each is relevant to case
: On March 1, year 1,Marvin Corporation received the vehicle. identify the key terms, and state why you believe each is relevant to your case
|
|
Credit card company set the minimum payment
: You don't use the credit card for any other purchases. does the credit card company set the minimum payment so low, at only 3% of your balance?
|