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Brent Bush, CFO of a medical device distributor, BioTron Medical, Inc., was approached by a Japanese customer, Numata, with a proposal to pay cash (in
Brent Bush, CFO of a medical device distributor, BioTron Medical, Inc., was approached by a Japanese customer, Numata, with a proposal to pay cash (in yen) for its typical orders of 10,000,000 every other month if it were given a 5% discount. Numatas current terms are 90 days with no discounts. Using the following quotes and estimated cost of capital for Numata, Bush will compare the proposal with covering yen payments with forward contracts. Should Brent Bush accept Numatas proposal? Spot rate, /$ 107.91/$ 30-day forward rate, /$ 107.66/$ 90-day forward rate, /$ 106.81/$ 180-day forward rate, /$ 105.89/$ Numata's WACC 9.380% BioTron Medical's WACC 7.850% How much in U.S. dollars will BioTron Medical receive 1) with the discount and 2) with no discount but fully covered with a forward contract?
Brent Bush, CFO of a medical device distributor, BioTron Medical, Inc., was approached by a Japanese customer, Numata, with a proposal to pay cash (in yen) for its typical orders of 10,000,000 every other month if it were given a 5% discount. Numatas current terms are 90 days with no discounts. Using the following quotes and estimated cost of capital for Numata, Bush will compare the proposal with covering yen payments with forward contracts. Should Brent Bush accept Numatas proposal? | ||||
| Spot rate, /$ | 107.91/$ | |||
| 30-day forward rate, /$ | 107.66/$ | |||
| 90-day forward rate, /$ | 106.81/$ | |||
| 180-day forward rate, /$ | 105.89/$ | |||
| Numata's WACC | 9.380% | |||
| BioTron Medical's WACC | 7.850% | |||
How much in U.S. dollars will BioTron Medical receive 1) with the discount and 2) with no discount but fully covered with a forward contract? | ||||
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