DEVRY FIN 516 Week 7 Homework Set

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DEVRY FIN 516 Week 7 Homework Set

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• FIN 516 Week 7 Homework Set
• Problem 31-1 on Exchange Rates Based on Chapter
  31 International Corporate Finance
• You are a U.S. investor who is trying to
  calculate the present value of a 5 million cash
  inflow that will occur 1 year in the future. The
  spot exchange rate is S 1.25/ and the forward
  rate is F1 1.215/. You estimate that the
  appropriate dollar discount rate for this cash
  flow is 4 and the appropriate euro discount rate
  is 7.a) What is the present value of the 5
  million cash inflow computed by first discounting
  the euro and then converting it into dollars?
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• b) What is the present value of the 5 million
  cash inflow computed by first converting the cash
  flow into dollars and then discounting?
• c) What can you conclude about whether these
  markets are internationally integrated, based on
  your answers to parts a) and b)?
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• Problem 31-2 on Currency Appreciation Based on
  Chapter 31 International Corporate Finance
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• Mia Caruso Enterprises, a U.S. manufacturer of
  childrens toys, has made a sale in Cyprus and is
  expecting a C4 million cash inflow in 1 year.
  The current spot rate is S 1.80/C and the
  1-year forward rate is F1 1.8857/C.
• a) What is the present value of Mia Carusos C4
  million inflow computed by first discounting the
  cash flow at the appropriate Cypriot pound
  discount rate of 5, and then converting the
  result into dollars?
• b) What is the present value of Mia Carusos C4
  million inflow computed by first converting the
  cash flow into dollars, and then discounting at
  the appropriate dollar discount rate of 10?
• c) What can you conclude about whether these
  markets are internationally integrated, based on
  your answers to parts a) and b)?
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• Problem 31-7 on Eurobonds Versus Domestic Bonds
  Based on Chapter 31 International Corporate
  Finance
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• The dollar cost of debt for Coval Consulting, a
  U.S. research firm, is 7.5. The firm faces a tax
  rate of 30 on all income, no matter where it is
  earned. Managers in the firm need to know its yen
  cost of debt because they are considering
  launching a new bond issue in Tokyo to raise
  money for a new investment there.
• What is Coval Consultings after-tax cost of
  debt in yen? (Hint Start by finding the
  after-tax cost of debt in dollars and then find
  the yen equivalent.)
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• Problem 31-12 on Credit and Exchange Rate Risk
  Based on Chapter 31 International Corporate
  Finance
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• Suppose the interest on Russian government bonds
  is 7.5, and the current exchange rate is 28
  rubles per dollar. If the forward exchange rate
  is 28.5 rubles per dollar, and the current U.S.
  risk-free interest rate is 4.5, what is the
  implied credit spread for Russian government
  bonds?
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• Problem 30-9 on Forward Market Hedge Based on
  Chapter 30 Risk Management
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• You are a broker for frozen seafood products for
  Choyce Products. You just signed a deal with a
  Belgian distributor. Under the terms of the
  contract, in 1 year, you will deliver 4000 kg of
  frozen king crab for 100,000 euros. Your cost for
  obtaining the king crab is 110,000. All cash
  flows occur in exactly 1 year.
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