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(b) Suppose that the Irish construction company Sisk Group orders 10 trucks from the US company Caterpillar for delivery in 9 months time at a cost of $2,000,000. Show how Sisk Group can hedge this FX exposure using forward contracts. The current EURUSD spot price is 0.94 (1 USD = 0.94 EUR) and the forward price is 0.88.
(c) Discuss the pros and cons of using forwards or options to hedge financial risk. Should firms hedge financial risk or not, in your opinion?
A call option is currently selling for $4.30. It has a strike price of $35 and five months to maturity. The current stock price is $37, and the risk-free rate is 3.8 percent. The stock will pay a dividend of $1.65 in two months. What is the price of ..
What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?
Company plans to purchase a new equipment to improve its productivity for next 3 years. What is the monthly payment and what is the final total cost to company.
Cavo Corporation expects an EBIT of $29,550 every year forever. The company currently has no debt, and its cost of equity is 11 percent. The corporate tax rate is 35 percent What is the current value of the company?
Essary Enterprises has bonds on the market making annual payments, with eleven years to maturity, a par value of $1,000, and selling for $970. At this price, the bonds yield 7 percent. What must the coupon rate be on the bonds? (answer as a percent r..
If the DM/US$ exchange rate were 2.4DM/US$ in January 1986, what would be the all in cost of the aircraft purchase under each alternative? How much would the cost be under each alternative if the exchange rate were at 3.4DM/US$? Cover some or all of ..
You are on the staff of Camden Inc. The CFO believes project acceptance should be based on the NPV, but Steve Camden, the president, insists that no project should be accepted unless its IRR exceeds the project's risk-adjusted WACC. What is your opti..
what will be the required return on your $5.5 million portfolio?
A $10,000 bond has twelve years to maturity and a coupon rate of 5.35% (semi-annual). Rates on current bonds of similar risk are 4.88%.
Chapter 8 discusses stock valuation. Often it is argued that Managers should not focus on the current stock price because this leads to an over-emphasis on short term profits at the expense of long-term profits. Is this true?
A manufacturer of TV sets claims that at least 98% of its TV set scan last more than 10 years without needing a single repair. In order to verify and challenge this claim, a consumer group randomly selected 800 consumers who had owned a TV set made b..
What is the value of this investment if the interest rate is 6 1/4%?
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