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The company has total assets of $ 1 4 0 million and debt of $ 4 0 million. The firm's before - tax cost of
The company has total assets of $ million and debt of $ million. The firm's beforetax cost of debt is percent, and its cost of financing with equity is percent. The MNC has a corporate tax rate of 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 US oneyear interest rate is percent and the Canadian oneyear interest rate is percent. Also assume that interest rate parity exists and that the spot exchange rate of the Canadian dollar is $
a Should the forward rate of the Canadian dollar exhibit a discount or a premium? Explain. marks
b If US investors attempt covered interest arbitrage, what will be their return? marks
c If the Canadian investors attempt covered ;ntest arbitrage, what will be their return? marks
d According to interest rate parity, what should be the one year forward rate of the Canadian dollar? marks
e What is this firm's cost of capital? marks
f How would the appreciation of the euro likely affect its net cash flows? Why? 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. marks
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