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Grupo Modelo S.A.B. de C.V. Grupo Modelo, a brewery out of Mexico that exports such well-known varieties as Corona, Modelo, and Pacifico, is Mexican by

Grupo Modelo S.A.B. de C.V. Grupo Modelo, a brewery out of Mexico that exports such well-known varieties as Corona, Modelo, and Pacifico, is Mexican by incorporation. However, the company evaluates all business results, including financing costs, in U.S. dollars. The company needs to borrow $25,000,000 or the foreign currency equivalent for four years. For all issues, interest is payable once per year, at the end of the year. Available alternatives are as follows:

a. Sell Japanese yen bonds at par yielding 3.50% per annum. The current exchange rate is 108.00/$, and the yen is expected to strengthen against the dollar by 2.1% per annum. What is the effective cost of the yen-denominated loan for Grupo Modelo?

b. Sell euro-denominated bonds at par yielding 6.70% per annum. The current exchange rate is $1.1960/, and the euro is expected to weaken against the dollar by 2.5% per annum. What is the effective cost of the euro-denominated loan for Grupo Modelo?

c. Sell U.S. dollar bonds at par yielding 5.10% per annum. What is the effective cost of the dollar-denominated loan for Grupo Modelo?

d. Which course of action do you recommend Grupo Modelo take and why?

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a. Complete the following table to calculate the dollar cost of the yen-denominated debt for years 0 through 4. Enter a positive number for a cash inflow and a negative number for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to two decimal places.) \begin{tabular}{ccccccc|} & Year 0 & Year 1 & Year 2 & Year 3 & Year 4 \\ \hline Cash flow in & = & & & & & \end{tabular} Exchange rate, /$ 108.00 Cash flow in $ $25,000,000$ $ $

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