Takashima Auto Parts (Japan). Takashima Auto Parts is a Japanese-based automotive parts supplier and was spun off from Toyota in 2007. With annual sales of ¥30 billion, the company has expanded its markets beyond the traditional automobile manufacturers in the pursuit of a more diversified sales base. As part of the general diversification effort, the company wishes to diversify the currency of denomination of its debt portfolio as well. Assume Takashima enters a ¥60 million 7-year cross-currency interest rate swap to do just that—pay euros and receive Japanese yen.

Also assume that the current spot rate is ¥135.81/€.

Using the data in Exhibit 8.13, solve the following:

a. Calculate all the principal and interest payments in both currencies for the life of the swap.

b. Assume that three years later Takashima decides to unwind the swap agreement. If the 4-year fixed rates of interest in euros have now risen to 0.5%, the 4-year interest rate on Japanese yen has fallen to 0.13%, and the spot exchange rate 3 years from now is ¥121.16/€, what is the net present value of the swap agreement? Explain the payment obligations of the two parties precisely.