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Starbucks Corp., a US company, has a plan to build 30 cafes in Switzerland. Starbucks has hired O’Neill Construction, a Swiss company, to build these cafes, at a cost of CHF 60,000,000. The payment (in the Swiss currency) is due in nine (9) months.
Starbucks is given the following information:
Spot rate = CHF 1.54 / USD
9-month forward rate = CHF 1.49 / USD
Interest rate in Switzerland = 12% per year
Interest rate in U.S.A. = 6% per year
Starbucks’s own forecast suggests that the spot rate 9 months from now is most likely CHF 1.55 / USD. If the firm uses the unhedged position, how much USD will it need in 9 months?
A. USD38,961,000
B. USD 93,000,000
C. USD 40,268,000
D. USD 38,710,000
Calculate the return on invested capital (ROIC) for each firm.
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