Question
All interest and inflation rates are stated as annual rates. There are 30 points available on each question. The points are equally divided among the
All interest and inflation rates are stated as annual rates. There are 30 points available on each question. The points are equally divided among the subparts. ?
1. Use the data from the file economic risk attached at the bottom to answer the following:
a. How does a 1% change in the exchange rate for the Brazilian real affect the price of the stock?
b. Is the relationship between the changes in the value of the real and returns on the stock statistically significant? Explain how you determine this.
c. If an investor owning stock in the company were to hedge the real related risk of the stock perfectly, how much lower would the risk of the investment be? (That is, how much lower would the volatility of the stock be after hedging real related risk?)
d. When the value of the real increases, how does the stock price change? ?
2a. How does forecasting cash flows for a multinational project differ from forecasting cash flows for a US based project?
b. Describe one way the required return for the project located in a foreign country can be determined if the required return for a similar project located in the US is known.
c. When determining the required return for a capital budgeting project located in a foreign country, why does it matter whether the capital market in that foreign country is integrated with the world market or is segmented? How does the required return in a segmented market differ from that in an integrated market? ?
3a. A US company has an account payable to an affiliated Irish company in 90 days. The amount of the payable is 500,000. The spot exchange rate for the euro is EUR/USD 1.2131. The companys combined federal and state income tax rate is 25%; the Irish corporate income tax rate is 12.5%. The company expects the exchange rate for the euro to decline to 1.2030 prior to the accounts due date. When should the company make the payment? Explain.
b. What is the payment described in part b called? How can the company justify the amount of the payment if it is challenged by the US Internal Revenue Service or Irelands Revenue authority?
c. Name three ways a company that has excess cash can make that cash available to an affiliated company in another country without making a loan to the other company or purchasing stock that it issues.?
4. An affiliated group of companies makes payments to each other as indicated on the table below. (All amounts are indicated in US dollars.) payee Payor Australia France Korea Taiwan UK Australia 35000 124000 104000 37000 France 27000 33000 82000 95000 Korea 45000 121000 65000 113000 Taiwan 97000 33000 69000 55000 UK 115000 65000 90000 106000
a. What does it mean for the companies to aggregate payments made to each other company?
b. What payments should be made if this group of companies use multilateral netting?
c. What payments should be made if they use multilateral netting? d. What payments would be made if the Australia company acts as a re-invoicing center for this group of companies? ?
5a. Explain how worldwide taxation and territorial taxation differ?
b. Explain what a direct tax is and give an example of a foreign cash flow that is subject to a direct tax.
c. Explain what a withholding tax is and give an example of a foreign cash that is subject to a withholding tax.
d. Explain what is a value added tax is and give an example of a cash flow that is subject to a value added tax.
e. Explain what the direct foreign tax credit is and give an example where it will apply. f. Explain what the indirect foreign tax credit is and give an example where it will apply.
Date | Stock price | USD/BRL |
6/29/2018 | 0.20 | 3.9741 |
6/28/2018 | 0.25 | 3.9642 |
6/27/2018 | 0.25 | 3.9721 |
6/26/2018 | 0.25 | 3.9631 |
6/25/2018 | 0.23 | 3.9728 |
6/22/2018 | 0.31 | 3.9734 |
6/21/2018 | 0.21 | 3.9696 |
6/20/2018 | 0.22 | 3.9696 |
6/19/2018 | 0.21 | 3.9657 |
6/18/2018 | 0.21 | 3.973 |
6/15/2018 | 0.34 | 3.9621 |
6/14/2018 | 0.30 | 3.9737 |
6/13/2018 | 0.34 | 3.961 |
6/12/2018 | 0.34 | 3.9636 |
6/11/2018 | 0.34 | 3.9599 |
6/8/2018 | 0.30 | 3.9604 |
6/7/2018 | 0.29 | 3.958 |
6/6/2018 | 0.29 | 3.9685 |
6/5/2018 | 0.29 | 3.9576 |
6/4/2018 | 0.30 | 3.967 |
6/1/2018 | 0.35 | 3.9642 |
5/31/2018 | 0.40 | 3.9604 |
5/30/2018 | 0.35 | 3.9694 |
5/29/2018 | 0.35 | 3.9611 |
5/25/2018 | 0.27 | 3.9706 |
5/24/2018 | 0.29 | 3.9813 |
5/23/2018 | 0.15 | 3.9813 |
5/22/2018 | 0.15 | 3.9666 |
5/21/2018 | 0.20 | 3.973 |
5/18/2018 | 0.20 | 3.9802 |
5/17/2018 | 0.12 | 3.9825 |
5/16/2018 | 0.14 | 3.9862 |
5/15/2018 | 0.14 | 3.9919 |
5/14/2018 | 0.14 | 3.9903 |
5/11/2018 | 0.16 | 3.9611 |
5/10/2018 | 0.20 | 3.9694 |
5/9/2018 | 0.20 | 3.9834 |
5/8/2018 | 0.21 | 4 |
5/7/2018 | 0.19 | 4.0087 |
5/4/2018 | 0.22 | 3.9871 |
5/3/2018 | 0.16 | 3.9856 |
5/2/2018 | 0.24 | 3.9681 |
5/1/2018 | 0.24 | 3.9979 |
4/30/2018 | 0.24 | 4.017 |
4/27/2018 | 0.21 | 4.0097 |
4/26/2018 | 0.25 | 4.0246 |
4/25/2018 | 0.29 | 4.0134 |
4/24/2018 | 0.29 | 4.0084 |
4/23/2018 | 0.21 | 4.0142 |
4/20/2018 | 0.21 | 3.997 |
4/19/2018 | 0.32 | 4.0187 |
4/18/2018 | 0.31 | 4.0376 |
4/17/2018 | 0.29 | 4.0093 |
4/16/2018 | 0.29 | 4.0053 |
4/13/2018 | 0.26 | 4.0114 |
4/12/2018 | 0.30 | 4.0015 |
4/11/2018 | 0.29 | 4.0041 |
4/10/2018 | 0.20 | 4.0063 |
4/9/2018 | 0.20 | 4.0029 |
4/6/2018 | 0.22 | 3.9935 |
4/5/2018 | 0.22 | 3.9591 |
4/4/2018 | 0.24 | 3.9277 |
4/3/2018 | 0.25 | 3.9239 |
4/2/2018 | 0.25 | 3.9052 |
3/29/2018 | 0.25 | 3.8956 |
3/28/2018 | 0.23 | 3.9338 |
3/27/2018 | 0.20 | 3.9414 |
3/26/2018 | 0.20 | 3.9105 |
3/23/2018 | 0.30 | 3.8559 |
3/22/2018 | 0.26 | 3.8532 |
3/21/2018 | 0.26 | 3.8457 |
3/20/2018 | 0.28 | 3.8466 |
3/19/2018 | 0.29 | 3.8488 |
3/16/2018 | 0.37 | 3.824 |
3/15/2018 | 0.35 | 3.8303 |
3/14/2018 | 0.35 | 3.8211 |
3/13/2018 | 0.26 | 3.8271 |
3/12/2018 | 0.26 | 3.8294 |
3/9/2018 | 0.30 | 3.8292 |
3/8/2018 | 0.40 | 3.8181 |
3/7/2018 | 0.42 | 3.8107 |
3/6/2018 | 0.42 | 3.8008 |
3/5/2018 | 0.40 | 3.8045 |
3/2/2018 | 0.40 | 3.7907 |
3/1/2018 | 0.40 | 3.7974 |
2/28/2018 | 0.40 | 3.7778 |
2/27/2018 | 0.40 | 3.79 |
2/26/2018 | 0.40 | 3.7747 |
2/23/2018 | 0.40 | 3.7661 |
2/22/2018 | 0.42 | 3.7658 |
2/21/2018 | 0.42 | 3.7725 |
2/20/2018 | 0.42 | 3.7729 |
2/16/2018 | 0.45 | 3.7574 |
2/15/2018 | 0.47 | 3.7545 |
2/14/2018 | 0.40 | 3.7685 |
2/13/2018 | 0.35 | 3.7608 |
2/12/2018 | 0.35 | 3.756 |
2/9/2018 | 0.30 | 3.7798 |
2/8/2018 | 0.15 | 3.7668 |
2/7/2018 | 0.35 | 3.7555 |
2/6/2018 | 0.38 | 3.7385 |
2/5/2018 | 0.37 | 3.7584 |
2/2/2018 | 0.35 | 3.7598 |
2/1/2018 | 0.36 | 3.7857 |
1/31/2018 | 0.45 | 3.7823 |
1/30/2018 | 0.37 | 3.7747 |
1/29/2018 | 0.32 | 3.779 |
1/26/2018 | 0.27 | 3.7724 |
1/25/2018 | 0.37 | 3.7528 |
1/24/2018 | 0.35 | 3.7446 |
1/23/2018 | 0.32 | 3.7332 |
1/22/2018 | 0.35 | 3.7153 |
1/19/2018 | 0.35 | 3.7083 |
1/18/2018 | 0.35 | 3.7046 |
1/17/2018 | 0.35 | 3.6949 |
1/16/2018 | 0.33 | 3.6882 |
1/12/2018 | 0.32 | 3.7031 |
1/11/2018 | 0.30 | 3.7035 |
1/10/2018 | 0.30 | 3.6843 |
1/9/2018 | 0.30 | 3.6773 |
1/8/2018 | 0.31 | 3.6848 |
1/5/2018 | 0.30 | 3.6742 |
1/4/2018 | 0.44 | 3.6581 |
1/3/2018 | 0.44 | 3.6755 |
1/2/2018 | 0.44 | 3.6833 |
####### | 0.50 | 3.6838 |
####### | 0.46 | 3.6845 |
####### | 0.46 | 3.6892 |
####### | 0.45 | 3.6947 |
####### | 0.45 | 3.678 |
####### | 0.45 | 3.6976 |
####### | 0.45 | 3.699 |
####### | 0.45 | 3.6796 |
####### | 0.45 | 3.6848 |
####### | 0.45 | 3.6777 |
####### | 0.45 | 3.6788 |
####### | 0.44 | 3.6809 |
####### | 0.42 | 3.6753 |
####### | 0.45 | 3.6757 |
12/8/2017 | 0.45 | 3.6591 |
12/7/2017 | 0.50 | 3.6508 |
12/6/2017 | 0.45 | 3.664 |
12/5/2017 | 0.45 | 3.6661 |
12/4/2017 | 0.45 | 3.6582 |
12/1/2017 | 0.45 | 3.6407 |
####### | 0.46 | 3.6413 |
####### | 0.45 | 3.6436 |
####### | 0.48 | 3.6422 |
####### | 0.50 | 3.6192 |
####### | 0.50 | 3.6291 |
####### | 0.52 | 3.6227 |
####### | 0.52 | 3.6146 |
####### | 0.59 | 3.6246 |
####### | 0.52 | 3.6293 |
####### | 0.51 | 3.6311 |
####### | 0.51 | 3.6273 |
####### | 0.45 | 3.6194 |
####### | 0.40 | 3.6168 |
####### | 0.40 | 3.6146 |
11/9/2017 | 0.40 | 3.6023 |
11/8/2017 | 0.45 | 3.6052 |
11/7/2017 | 0.41 | 3.6219 |
11/6/2017 | 0.38 | 3.6049 |
11/3/2017 | 0.40 | 3.6046 |
11/2/2017 | 0.45 | 3.6126 |
11/1/2017 | 0.45 | 3.6011 |
####### | 0.52 | 3.6023 |
####### | 0.55 | 3.6049 |
####### | 0.52 | 3.6089 |
####### | 0.54 | 3.6073 |
####### | 0.57 | 3.6042 |
####### | 0.52 | 3.599 |
####### | 0.52 | 3.6 |
####### | 0.52 | 3.6062 |
####### | 0.54 | 3.6118 |
####### | 0.51 | 3.6025 |
####### | 0.55 | 3.6016 |
####### | 0.55 | 3.6067 |
####### | 0.50 | 3.6065 |
####### | 0.58 | 3.5908 |
####### | 0.60 | 3.5967 |
####### | 0.60 | 3.5967 |
10/9/2017 | 0.59 | 3.5986 |
10/6/2017 | 0.50 | 3.5903 |
10/5/2017 | 0.65 | 3.5869 |
10/4/2017 | 0.60 | 3.595 |
10/3/2017 | 0.60 | 3.598 |
10/2/2017 | 0.62 | 3.6029 |
9/29/2017 | 0.65 | 3.6032 |
9/28/2017 | 0.65 | 3.5966 |
9/27/2017 | 0.58 | 3.6048 |
9/26/2017 | 0.65 | 3.6028 |
9/25/2017 | 0.62 | 3.6025 |
9/22/2017 | 0.59 | 3.6048 |
9/21/2017 | 0.50 | 3.5937 |
9/20/2017 | 0.55 | 3.6131 |
9/19/2017 | 0.55 | 3.6122 |
9/18/2017 | 0.52 | 3.5896 |
9/15/2017 | 0.59 | 3.5901 |
9/14/2017 | 0.59 | 3.5947 |
9/13/2017 | 0.55 | 3.5938 |
9/12/2017 | 0.60 | 3.5881 |
9/11/2017 | 0.60 | 3.5862 |
9/8/2017 | 0.60 | 3.5849 |
9/7/2017 | 0.50 | 3.5882 |
9/6/2017 | 0.55 | 3.5935 |
9/5/2017 | 0.61 | 3.5947 |
9/1/2017 | 0.67 | 3.6019 |
8/31/2017 | 0.68 | 3.5765 |
8/30/2017 | 0.50 | 3.5864 |
8/29/2017 | 0.60 | 3.5777 |
8/28/2017 | 0.69 | 3.5742 |
8/25/2017 | 0.65 | 3.5778 |
8/24/2017 | 0.71 | 3.569 |
8/23/2017 | 0.66 | 3.5669 |
8/22/2017 | 0.60 | 3.5625 |
8/21/2017 | 0.60 | 3.5508 |
8/18/2017 | 0.50 | 3.5589 |
8/17/2017 | 0.50 | 3.5531 |
8/16/2017 | 0.50 | 3.5574 |
8/15/2017 | 0.50 | 3.5547 |
8/14/2017 | 0.43 | 3.556 |
8/11/2017 | 0.50 | 3.5549 |
8/10/2017 | 0.50 | 3.5439 |
8/9/2017 | 0.48 | 3.5562 |
8/8/2017 | 0.48 | 3.5456 |
8/7/2017 | 0.39 | 3.5494 |
8/4/2017 | 0.48 | 3.5403 |
8/3/2017 | 0.50 | 3.5306 |
8/2/2017 | 0.50 | 3.5372 |
8/1/2017 | 0.50 | 3.5466 |
7/31/2017 | 0.50 | 3.5387 |
7/28/2017 | 0.49 | 3.5262 |
7/27/2017 | 0.41 | 3.5217 |
7/26/2017 | 0.50 | 3.529 |
7/25/2017 | 0.50 | 3.5282 |
7/24/2017 | 0.50 | 3.54 |
7/21/2017 | 0.41 | 3.5233 |
7/20/2017 | 0.41 | 3.5304 |
7/19/2017 | 0.51 | 3.5248 |
7/18/2017 | 0.60 | 3.5224 |
7/17/2017 | 0.60 | 3.5323 |
7/14/2017 | 0.60 | 3.5363 |
7/13/2017 | 0.60 | 3.5272 |
7/12/2017 | 0.64 | 3.536 |
7/11/2017 | 0.60 | 3.5281 |
7/10/2017 | 0.60 | 3.5377 |
7/7/2017 | 0.60 | 3.5311 |
7/6/2017 | 0.60 | 3.5339 |
7/5/2017 | 0.60 | 3.5359 |
7/3/2017 | 0.65 | 3.5424 |
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