The company has total assets of $$140$ million and debt of $$40$ million. The firm's before$-$tax cost of debt is $10$ percent, and its cost of financing with equity is $13$ percent. The MNC has a corporate tax rate of $25$ percent.

Dalora Inc. uses the international financial markets to take advantage DC favourable economic conditions and to reap the benefits of international diversification. Assume that the existing U$.$S$.$ one$-$year interest rate is $5$ percent and the Canadian one$-$year interest rate is $6$ percent. Also assume that interest rate parity exists and that the spot exchange rate of the Canadian dollar is $$0\mathrm{.}75.$

a$)$ Should the forward rate of the Canadian dollar exhibit a discount or a premium? Explain.$[3$ marks$]$

b$)$ If U$.$S$.$ investors attempt covered interest arbitrage, what will be their return? $[3$ marks$]$

c$)$ If the Canadian investors attempt covered ;nte$$st arbitrage, what will be their return?$[3$ marks$]$

d$)$ According to interest rate parity, what should be the one year forward rate of the $[3$ Canadian dollar? $[3$marks$]$

e$)$ What is this firm's cost of capital? $[3$ marks$]$

f$)$ How would the appreciation of the euro likely affect its net cash flows? Why? $[5$ marks$]$

g$)$ Explain how your Jamaican business will likely be affected $($at least in the short run$)$ if the Bank of Jamaica intervenes in the foreign exchange market by exchanging Jamaican dollars for US dollars. $[5$ marks$]$