1. Use the following case to answer the questions about Central Valley Transit Inc. (CVT) Central Valley Transit Inc. (CVT) Use the information for the following problems. Central Tranchestrato purchase light rail cars from a manufacturer in Germany for euro 3.000.000. The purchase was made mo later in December. Because this is a sizable contract for the firm and because the contract is in the concent several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the formacion you have gathered the following information. The spot exchange rate is $1.220/euro The six month forward rate is $1.28/euro CVTis cost of capital is 119 The Euro zone 6-month borrowing rate is 9% (or 4.5% for 6 months) The Euro zone 6-month lending rate is 79 (or 3.5% for 6 months) The U.S. 6-month borrowing rate is 896 (or 496 for 6 months) The U.S. 6-month lending rate is 6% (or 396 for 6 months) December call options for euro 750,000: strike price $1.25. premium price is 1.5% CVT's forecast for 6-month spot rates is $1.27/euro The budget rate, or the highest acceptable purchase price for this project, is $3,900,000 or $1.30/euro QUESTION 1 (Use Case Central Valley Transit Inc.) If CVT locks in the forward hedge, and the spot rate when the transaction was recorded on the books was $1.25/euro, this will result in a foreign exchange accounting transaction of loss: euro90,000 O galn: $90,000 ho O loss: $90,000 O gain: euro90,000. QUESTION 2 (Use Case Central Valley Transit Inc.) CVT chooses to hedge its transaction exposure in the forward market at the available forward rate. The required amount in dollars to pay off the accounts payable in 6 months will be O $3,750,000 $3,000,000 53.810,000. $3,840,000 QUESTION 10 (Use Case Central Valley Transit Inc.) What is the cost of a call option hedge for CVT's euro receivable contract? (Note: Calculate the cost in future value dollars and assume the firm's cost of capital as the appropriate interest rate for calculating future values.) 559.904 O $57,920 $63,936 $62.208