American Rapid Rail Inc. (ARR) has just signed a contract to purchase a high-speed train from Shinkasen Inc., a manufacturer in Japan for 14.95 billion. The purchase was made in November 2023 with payment due six months later in May 2024. Because this is a sizable contract for the firm and because the contract is in Yen rather than dollars, ARR is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information.

• The spot exchange rate, when the contract is signed, is 115.41/$
• The six-month forward rate is 115.39/$
• ARRs forecast for 6-month spot rates is 115.43/$
• May 2024 call options for 5,000,000; strike price 115.00/$, premium price 2.40253
• May 2024 put options for 5,000,000; strike price 115.00/$, premium price 2.26585
• ARR's cost of capital is 12% per year, or 6% for 6 months

If ARR has an option hedge in place to cover its Yen payable, and the future spot rate settles at 114.73/$, in 6 months, the option will be

a. exercised at a total cost of $130,000,066.37

b.exercised at a total cost of $130,000,000

c. not exercised at a total cost of $130,000,000

d. not exercised at a total cost of $130,306,002.05