What will that do to our sourcing costs

Assignment Help Financial Management

Reference no: EM131354502

Assume the exchange rate is such that a US dollar is currently worth A$1.15 (A$ is Australian dollars).

a. If a company is sourcing materials from Australia and is contracted to pay A$27.5 million next year, what is that equivalent in US dollars?

b. Suppose inflation in Australia is expected to be 2% while US inflation is expected to be 7% over the course of the next year. Use one of the theories from the chapter (and explain it) to predict what the value of a US Dollar will be in A$ at this time next year.

c. What will that do to our sourcing costs? (calculate the new number)

d. Suppose instead that we knew that Australian interest rates are 5.6% and U.S. interest rates are 4.4%. What would the Forward exchange rate have to be in order to make the return of investing in the U.S. equal to the covered return of investing in Australia?

e. What will that do to our sourcing costs? (calculate the new number)

Reference no: EM131354502

Questions Cloud

Under what circumstances will the put option be exercised : Suppose that a European put option to with a strike price price of $70 costs $5 and is held until expiration. Under what circumstances will the put option be exercised? Under what circumstances the seller of the put option make a profit?

Capital structure consists solely of debt-common equity : Hook Industries' capital structure consists solely of debt and common equity. It can issue debt at rd = 11%, and its common stock currently pays a $3.25 dividend per share (D0 = $3.25). The stock's price is currently $21.25, its dividend is expected ..

What is its cost of common equity : The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $26.25 per share; its last dividend was $1.80; and it will pay a $1.89 dividend at the ..

What is your estimate of callahan cost of common equity : The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $26.25 per share; its last dividend was $1.80; and it will pay a $1.89 dividend at the ..

What will that do to our sourcing costs : Assume the exchange rate is such that a US dollar is currently worth A$1.15 (A$ is Australian dollars). If a company is sourcing materials from Australia and is contracted to pay A$27.5 million next year, what is that equivalent in US dollars? What w..

Well-diversified portfolio of high-quality-large-cap stocks : Nick Fitzgerald holds a well-diversified portfolio of high-quality, large-cap stocks. The current value of Fitzgeralds portfolio is $735,000, but he is concerned that the market is heading for a big fall (perhaps as much as 20%) over the next three t..

What is holmes after-tax cost of debt : The Holmes Company's currently outstanding bonds have a 8% coupon and a 14% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is Holmes's after-tax..

What is the risk neutral probability of an up movement : A binomial tree with three-month time steps is used to value a currency option. The domestic and foreign risk-free rates are 2% and 4% respectively. The volatility of the exchange rate is 20%. What is the risk neutral probability of an up movement? W..

User Account

All Pages