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Please workout the following questions showing the step by step progression in a word document and also attach a live excel work sheet for every
Please workout the following questions showing the step by step progression in a word document and also attach a live excel work sheet for every answer using finance formulas. Any question short of a step by step breakdown will be unacceptable.
MBAA 653 Problem Set: Modules 5, 6 and 7 Directions: Solve the following problems according to the instructions in the module assignment. 1. Your firm is an MNC headquartered in the United States. You have been tasked with estimating the weighted average cost of capital (WACC) given the following information: Firm's bond yield: Treasury rate: Beta: Expected market return: Target Capital Structure: Tax bracket: 8% 3% 1.5 11% 30% debt, 70% equity 35% 2. Texas Co. (TC) established a subsidiary in Russia two years ago. Under its original plans, TC intended to operate the subsidiary for a total of four years. Exchange forecasts suggest the ruble will likely depreciated from the current level of $0.033 to $0.028 to $0.025 over the next few years. TC could sell the subsidiary today for 5 million rubles to a potential acquirer. If TC continues to operate the subsidiary, it will generate cash flows of 3.5 million rubles next year and 4.5 million rubles in the following year. These cash flows would be remitted back to the parent in the U.S. The required rate of return of the project is 15 percent. Should TC continue operating the Russian subsidiary? 3. You are evaluating a project and are trying to determine the cash flows in dollars your firm needs to receive in five years to accept the project. The necessary information is: If you accept the project, your firm will receive 10 million Indian Rupee in 5 years, lump sum guaranteed Spot rate for Indian Rupee is $0.06 Annualized interest rate in United States for 5 year period is 5 percent Annualized interest rate in Thailand for 5 year period is 17 percent. Interest parity exists Plan is to hedge cash flows with a forward contract. What is the dollar amount of cash flows that firm will receive in five years if it accepts this project? 4. Wilmington Inc. is considering the acquisition of a unit from the French government. Initial outlay will be $4 million dollars All earnings reinvested Time period 8 years and at that time will sell acquisition for 12 million euros after taxes Spot rate for euro is $1.20 Risk free U.S. intersect rate regardless of maturity is 5 percent Risk free interest rate on euros regardless of maturity is 7 percent Interest rate parity holds Cost of capital is 20 percent Cash will be used for acquisition a. Using the parameters above, Determine the NPV. b. Rather than use all cash, Wilmington Inc. could partially finance the acquisition. It could obtain a loan of 3 million euros today that would be used to cover a portion of the acquisition. In this case, it would have to pay back a lump sum total of 7 million euros at the end of 8 years to repay the loan. There are no interest payments on this debt. This financing deal is structured such that none of the payment is tax-deductible. Determine the NPV if Wilmington uses the forward rate instead of the spot rate to forecast the future spot rate of the euro, and elects to partially finance the acquisition. 5. Assume the following information: Spot rate of Singapore dollar 90-day forward rate of Singapore dollar Quoted Price $.75 $.74 90-day Singapore interest rate 90-day U.S. interest rate 4.5% 2.5% Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1,000,000.) What market forces would occur to eliminate any further possibilities of covered interest arbitrage? 6. Assume the following information: One-year interest rate in New Zealand 5 percent One-year interest rate in U.S 12 percent Spot rate NZ$ $0.60 Forward rate NZ$ $0.54 initial investment of $10,000,000 (US (NZ) dollars for US (NZ) investor Is covered interest rate possible for US investors? New Zealand investors? Explain why covered interest rate arbitrage is or is not feasible. 7. Assume the following: You can buy a euro for 14 pesos. The bank will pay you 13 pesos for a euro. You can buy a U.S. dollar for .9 euros. The bank will pay you .8 Euros for a U.S. dollar. You can buy a U.S. dollar for 10 pesos. The bank will pay you 9 pesos for a U.S. dollar. You have $1,000. Can you use triangular arbitrage to generate a profit? If so, explain the order of the transactions that you would execute, and the profit that you would earn. If you cannot earn a profit from triangular arbitrage, explain why. 8. Given the following: Spot Rate Argentine Peso One-year interest rate U.S. One-year Argentine interest rate Futures price = forward price Interest rate parity exists $0.39 7 percent 12 percent Investor purchased futures contracts on Argentine Peso representing 1,000,000 pesos. Determine the total dollar amount of profit (loss) from this futures contract based on expectation Argentine peso will be worth $0.41 in one year. 9. Your firm has recently issued some fixed rate debt but would prefer to re-structure the debt using an interest rate swap to a floating rate of debt because your firm believes rates will be trending downward over the next several years. Listed below are the details for the existing debt and the desired floating debt: Fixed rate debt: Swap payments: Expected LIBOR rates: End of year 1: End of year 2: End of year 3: 10 percent LIBOR plus 1 percent 9 percent 8.5 percent 7 percent After executing the interest rate swap determine the rate your firm expects to pay on its debt over the next 3 years. 10. Project Information for firm ABC: Will export product to Mexico and is looking for firm to swap pesos with over life of project Time period of project is 4 years After tax cash flow expected to be 1,000,000 pesos Peso's spot rate is $0.20 Risk free annual interest rates: U.S. 6 percent, Mexico 11 percent Interest rate parity exists Use one year one year forward rate as predictor of exchange rate in one year Exchange rates will change by same percentage predicted for year one in years 2 through 4 Firm XYZ will take the 1,000,000 pesos each year at an exchange rate of $0.17 per peso Ignore taxes ABCs details: Capital Structure: Corp. Tax rate: Debt financing cost: US expected stock returns: Beta: 60 percent debt and forty percent equity 30 percent 10 percent 18 percent 0.9 ABC will use its cost of capital as required return on project Determine the NPV if ABC enters into a swap agreement with XYZ and does not hedge its positionStep by Step Solution
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