12. Farah Jeans. Farah Jeans of San Antonio, Texas, is completing a new assembly plant near Guatemala City. A final construction payment of Q8,600,000 is due in six months. ("Q" is the symbol for Guatemalan quetzals.) Farah uses 19.00% per annum as its weighted average cost of capital. Today's foreign exchange and interest rate quotations are as follows: Farah's treasury manager, concerned about the Guatemalan economy, wonders if Farah should be hedging its foreign exchange risk. The manager's own forecast is as follows: a. How much in U.S. dollars will Farah Jeans pay in 6 months without a hedge if the expected spot rate in 6 months is Q8.20/$? 07.33/$? Q6.55/S? b. How much in U.S. dollars will Farah Jeans pay in 6 months with a forward market hedge? c. How much in U.S. dollars will Farah Jeans pay in 6 months with a money market hedge? d. Which method would you select and why? a. How much in U.S. dollars will Farah Jeans pay in 6 months without a hedge if the expected spot rate in 6 months is 28.20/$? $ (Round to the nearest dollar.) () S How much in U.S. dollars will Farah Jeans pay in 6 months without a hedge if the expected spot rate in 6 months is 07.33/$? (Round to the nearest dollar.) ) How much in U.S. dollars will Farah Jeans pay in 6 months without a hedge if the expected spot rate in 6 months is 06.55/S? $ s (Round to the nearest dollar.) ba ? b. How much in U.S. dollars will Farah Jeans pay in 6 months with a forward market hedge? $ () (Round to the nearest dollar) c. How much in U.S. dollars will Farah Jeans pay in 6 months with a money market hedge? $ (Round to the nearest dollar.) ) d. Which method would you select and why? (Select from the drop-down menu.) The (1) provides the lowest certain cost hedging method for payment settlement. 8: Data Table Construction payment due in 6 months (AP, quetzals) 8,600,000 Present spot rate (quetzals/$) 6.97 6-month forward rate (quetzals/s) 7.12 Guatemalan 6-month interest rate (per annum) - 13.50% U.S. dollar 6-month interest rate (per annum) -) 7.00% Farah's weighted average cost of capital (WACC) 19.00% Click on the icon located on the top-right corner of the data table in order to copy its contents into a spreadsheet. 9: Data Table Expected spot rate in 6-months (quetzals/$) Highest expected rate (reflecting a significant devaluation) 8.20 Expected rate 7.33 Lowest expected rate (reflecting a strengthening of the quetzal) 6.55 Click on the icon located on the top-right corner of the data table in order to copy its contents into a spreadsheet. (1) O forward market hedge O money market hedge O unhedged position