Use the information for the following problem. Bobcat Company, U.S.-based manufacturer of industrial equipment, just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. The purchase price was Won 7,500 million. Won1,000 million has already been paid, and the remaining Won6,500 million is due in six months. The current spot rate is Won1100/$, and the 6-month forward rate is Won1175/$. The six-month Korean won interest rate is 4% per annum, the six-month US dollar rate is 2% per annum. Bobcat can invest at these interest rates, or borrow at 2% per annum above those rates. A six-month call option on won with a 1,000/$ strike rate has a 2.5% premium, while the six-month put option at the same strike rate has a 1.0% premium. Bobcat can invest at the rates given above, or borrow at 2% per annum above those rates. Bobcat's weighted average cost of capital is 10%. Assumptions Values Purchase price of Korean manufacturer, in Korean won 7,500,000,000 Less initial payment, in Korean won (1,000,000,000) Net settlement needed, in Korean won, in six months 6,500,000,000 Current spot rate (Won/$) 1100 Six month forward rate (Won/$) 1175 Bobcat's cost of capital (WACC) 10.00% Options on Korean won: Call Option Put Option Strike price, won 1,000.00 1,000.00 Option premium (percent) 2.50% 1.40% United States Korea Less initial payment, in Korean won (1,000,000,000) Net settlement needed, in Korean won, in six months 6,500,000,000 Current spot rate (Won/$) 1100 Six month forward rate (Won/$) 1175 Bobcat's cost of capital (WACC) 10.00% Options on Korean won: Call Option Put Option Strike price, won 1,000.00 1,000.00 Option premium (percent) 2.50% 1.40% United States Korea 2.00% 4.00% Six-month investment (not borrowing) interest rate (per annum) Borrowing premium of 2.000% Six-month borrowing rate (per annum) 2.00% 2.00% 4.00% 6.00% If Bobcat chooses to hedge its transaction exposure in the forward market, it will won 6,500,000,000 forward at a rate of O buy; won1,175/$ O buy; won1,100/$ O sell; won1,175/$ sell; $1,100/won Previous Next Brent Bush, CFO of a medical device manufacturer, BioTron Medical, Inc., was approached by a Japanese customer, Numata, with a proposal to pay cash (in yen) for its typical orders of 15,000,000 every other month if it were given a 3.5% discount. Numata's current terms are 30 days with no discounts. Using the following quotes and estimated cost of capital for Numata, Bush will compare the proposal with covering yen payments with forward contracts. 103.86/$ Spot rate, /$ 30-day forward rate, /$ 90-day forward rate, \/$ 180-day forward rate, /$ Numata's WACC 103.82/$ 103.71/$ 103.58/$ 7.50% BioTron Medical's WACC 9.00% How much in present value terms) will BioTron receive in US$s if Numata is given NO discount and exchange rate risk is managed using the 30-day forward contract? (Hint: Only consider one payment of Yen 15,000,000.) Yen119,503 Yen116,142 $116,142 O $119,503