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Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry 500 million yen in one year. The current spot rate is 125 yen per dollar and the one-year forward rate is 117 yen per dollar. The annual interest rate is 5% in Japan and 7% in the U.S. PCC can also buy a one-year call option on yen at the strike price of $.0080 per yen for a premium of $.00012 per yen. (a) Compute the future dollar costs of meeting this obligation using the money market hedge and the forward hedges. (b) Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the option hedge is used. (c) At what future spot rate do you think PCC may be indifferent between the option and forward hedge?
Discussions with a group of physicians regarding employment status of your hospital are taking place.
ABC Inc. issued nine-year, 9 percent semi-annual coupon bonds at par. Today, the bonds are priced at $990. What is the firm’s after-tax cost of debt if the tax rate is 40%?
A 11-year maturity convertible bond with a face value of $1,000 and a 7% coupon on a company with a bond rating of Aaa is selling for $1,190. The bond pays interest annually. Each bond can be exchanged for 20 shares, and the stock price currently is ..
Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 million.
Your supervising attorney runs late in court and asks you to meet with a potential client who is coming in to consult with her about a divorce. The client Jane arrives with her parents Sue and Bob, and tells you the following story. Jane and Jim have..
Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and ot..
How is it possible to invest only in the market portfolio yet have a portfolio beta of 1.5?
An investment will pay you $45,000 in 12 years. If the appropriate discount rate is 7.2 percent compounded daily, what is the present value?
Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .22 .30 .42 .58 Normal .46 .23 .21 .19 Bust .32 .01 −.22 −.50 a-1 If your portfolio is..
What is the company’s WACC?
Harry Trading Company must choose its optimal capital structure. Currently, the firm has a 20 percent debt ratio and the firm expects to generate a dividend next year of $5.44 per share. Dividends are expected to remain at this level indefinitely.
The investment portfolio of younger investors should be heavily weighted toward conservative assets such as government bonds and blue chip stocks. The relationship between risk and potential reward is inverse. A growth stock would pay low (or no) div..
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