what are the solutions for these problems?

SECTION D-50 marks Instructions: This section consists of two (2) questions with marks as indicated. Answer both questions in the answer booklet provided, showing all workings. (Sug- gested time: 50 minutes) Question 44 (25 marks) Assume that Baton Rouge, Inc. will need S$1 million in one year. The existing spot rate of the Singapore dollar is $.60. The one year forward rate of the Singapore dollar is $.62. The expected probability distribution for the future spot rate in one year as follows: Future Spot Rate $.61 .63 .67 Probability 20% 50 30 Assume that one year put options on Singapore dollars are available, with an exercise price of $.63 and a premium of $.04 per unit. One year call options on Singapore dollars are available with an exercise price of $.60 and a premium of $.03 per unit. Assume the following money market rates: Deposit rate Borrowing rate U.S. 8% 9 Singapore 5% 6 Given this information and showing and explaining all workings, determine whether a money market hedge, a currency options hedge or an unhedged strategy would be most appropriate for Baton Rouge to hedge its payables position. Question 45 a. Carbondale Inc., plans to construct a manufacturing plant in Mexico. This is expected to cost US$100 million. Carbondale intends to leave the plant open for three years. During the three years of operation, cash flows are expected to be 518 million Mexi can pesos in Year 1, 450 million pesos in Year 2 and 600 million pesos in Year 3. At the end of the third year, the company expects to sell the plant for 700 million pesos. The exchange rates are expected to be MXN12.95, MXN12.5 and MXN12 per US$ for years 1, 2 and 3 respectively. The firm's cost of capital is 12%. The required rate of return on this project is 16%. All cash flows are remitted back to the parent at the end of each year. Required: i. Calculate the Net Present Value of the project. State giving reason(s), whether Pexi should build the plant? (16 marks) ( 2 marks) b. Messan Co. (a U.S. firm) borrows U.S. funds at an interest rate of 10 percent per year. Its beta is 1.0. The long-term annualized risk-free rate in the U.S. is 6 percent. The stock market return in the U.S. is expected to be 16 percent annually. Messan's target capital structure is 40 percent debt and 60 percent equity. Messan Co. is subject to a 30% corporate tax rate. Estimate the cost of capital to Messan Co. SECTION C - 10 marks Instructions: This section contains three short answer questions. Please answer all questions in the answer booklet provided. (Suggested time: 10 minutes) Question 41 (4 marks) Packer, Inc., a U.S. producer of computer disks, plans to establish a subsidiary in Mexico in order to penetrate the Mexican market. Packer's executives believe that the Mexican peso's value is relatively strong and will weaken against the dollar over time. If their expectations about the peso value are correct, how will this affect the feasibility of the project? Explain. Question 42 (4 marks) Huskie Industries, a U.S.-based MNC, considers purchasing a small manufacturing company in France that sells products only within France. Huskie has no other existing business in France and no cash flows in euros. Would the proposed acquisition likely be more feasible if the euro is expected to appreciate or depreciate over the long run? Explain. Question 43 (2 marks) Sagcort is a U.S. based MNC that has recently expanded to Asia. Its U.S. parent exports to some Asian countries, with its exports denominated in the Asian currencies. It also has a large subsidiary in Hong Kong that serves that market. Identify two methods Sagcort may use to reduce foreign currency exposure