10.9 Kraftangan Ornamentals. Kraftangan Ornamentals, a Malaysian, 100% privately-owned ornamentals com- pany, has signed an agreement to acquire a 60% own- ership share of Taiwan Ornamentals, a Taiwan-based, privately-owned ornamental company specializing in customized figurines from Thailand and Indonesia. The acquisition price is 9 million Taiwan dollars (T$), payable in cash in three months. Ahmad Chik, the owner of Kraftangan Ornamentals, believes the Taiwan dollar will either remain stable or decline slightly over the next three months. At the present spot rate of T$235/RM, the amount of cash required is only RM1,224,490, but even this relatively modest amount will need to be borrowed person- ally by Ahmad Chik. The Taiwanese interest-bearing deposits by non-residents are regulated by the govern- ment and are currently set at 1.7% per year. He has a credit line with Malaysian Entrepreneurial Bank for RM1,224,490 with a current borrowing interest rate of 6.5% per year. He does not believe that he can calcu- late a credible weighted average cost of capital since the company is not listed and neither are his closest competitors. Since the acquisition would use up all his available credit, he wonders if he should hedge the transaction exposure. He has the following quotes from the Malaysian Entrepreneurial Bank: a. What are the costs and benefits of alternative hedges? Which would you recommend, and why? b. What is the break-even reinvestment rate when comparing forward and money market alternatives