1.K-Roo Corp., based in Sydney, has a USD payable of 35.612 million due in 300 days.

It faces the following exchange, derivative, and interest rates:

	Bid	Ask
Spot rate at t=0	USD1.1905/AUD	USD1.1914/AUD
Forward rate at t=300	USD1.2282/AUD	USD1.2303/AUD
300-day put at USD1.25/AUD	USD0.0435/AUD	USD0.0484/AUD
300-day call at USD1.20/AUD	USD0.0526/AUD	USD0.0572/AUD
300-day AUD interest rate	1.17% (annual)	1.39% (annual)
300-day USD interest rate	5.41% (annual)	5.56% (annual)

Assume that K-Roo Corp. funds any up-front hedging costs (including brokerage fees and option premiums) by borrowing the required amount in its home currency.

Which of the following is the closest to the actual net realized value in AUD of K-Roo's payable if the firm uses an option to hedge the exchange rate risk?

Select one:

a. AUD29,661,266

b. AUD44,865,788

c. AUD28,707,283

d. AUD28,667,034

e. AUD44,321,181

2.

Roo-fus Inc. is an Australian dog food producer specializing in kangaroo-based dog food. It is looking to set up operations in New Zealand. The financial expert is has hired expects the following cash flows (in New Zealand Dollars):

Yr0	Yr1	Yr2	Yr3	Yr4
-5.3	20	18.9	16.2	14.2

The corporate tax rate is 30% in Australia and in New Zealand. The risk-free rate is 6.7% in Australia and is 3.8% in New Zealand. Inflation is 1.9% in Australia and is 3.3% in New Zealand.

The current spot NZD/AUD exchange rate in 0.83 NZD/AUD. The required rate of return for this type of project is 6.4% in Australia and 3.7% in New Zealand.

Suppose that 54% of the funds are blocked in New Zealand where they earn no return, until one year after the project finishes.

If PPP holds, what is the NPV of the project in AUD?

Select one:

a. 39.7024

b. 47.8342

c. 32.8186

d. 34.3043

e. 58.3682