lesu 4 You have studied a pre-assignment (offline) describing the situation of BioTech Tools Inc. Dylan Hamilton, CFO of this medical device manufacturer, was approached by a Japanese customer, Hakitama, with a proposal to pay cash (in yen) for its typical orders. Hamilton needs to compare this proposal with covering yen payments with forward contracts. BioTech Tools receive in U.S. dollars with the discount and with no discount but fully covered with a forward contract. Question 4. BioTech Tools, Inc. Dylan Hamilton, CFO of a medical device manufacturer, BioTech Tools, Inc., was approached by a Japanese customer, Hakitama, with a proposal to pay cash (in yen) for its typical orders of 12,500,000 every other month if it were given a 4.5% discount. Hakitama's current terms are 30 days with no discounts. Using the following quotes and estimated cost of capital for Hakitama, Hamilton will compare the proposal with covering yen payments with forward contracts. Spot rate, \/$ 30-day forward rate, /$ 90-day forward rate, /$ 180-day forward rate, W/$ Hakitama's WACC BioTech Tools's WACC 111.40/$ 111.00/$ 110.40/$ 109.20/$ 8.850% 9.200% How much in U.S. dollars will BioTech Tools receive 1) with the discount and 2) with no discount but fully covered with a forward contract? Values Assumptions BioTron's 30-day account receivable, Japanese yen Spot rate, \/$ 30-day forward rate, W/$ 90-day forward rate, W/$ 180-day forward rate, W/$ Hakitama's WACC Bio Tech Tools's WACC Desired discount on purchase price by Hakitama 0.000% 0.000% 0.000% Dylan Hamilton should compare two basic alternatives, both of which eliminate the currency ri 1. Allow the discount and receive payment in Japanese yen in cash Account recievable (yen) Discount for cash payment up-front (4.500%) Amount paid in cash net of discount Current spot rate Amount received in U.S. dollars by Bio Tech Tools calcu 2. Not offer any discounts for early payment and cover exposure with forwards Account receivable (yen) 30-day forward rate Amount received in cash in dollars, in 30 days #DIV/0! ready Discount factor for 30 days @ Seattle's WACC Present value of dollar cash received 1.0000 #DIV/0! ready ready