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McDougan Associates (USA). McDougan Associates, a US-based investment parmership, borrows 85,000,000 at a time when the exchange rate is $1.3333-1.00. The entire principal is
McDougan Associates (USA). McDougan Associates, a US-based investment parmership, borrows 85,000,000 at a time when the exchange rate is $1.3333-1.00. The entire principal is to be repaid in three years, and interest is 6.550% per annum, paid annually in euros. The euro is expected to depreciate vis--vis the dollar at 3.3% per annum. What is the effective cost of this loan for McDougan? Complete the following table to calculate the dollar cost of the euro-denominated debt for years through 3. Enter a positive mumber for a cash inflow and negative for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to four decimal places.) Year 0 85.000.000 Proceeds from borrowing euros Interest payment due in euros Repayment of principal in year 3 Total cash flow of euro-denominated debt Expected exchange rate, 5 1.00 Dollar equivalent of euro-denominated cash flow $ 13333 Year 1 Year 2 Year 3 f (85.000.000) A
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