What impact would a revaluation upward have

Assignment Help Financial Management
Reference no: EM131014103

A small Canadian company has contracted to purchase 100,000 toys for £ 3.50 each from a British company. The Canadians have agreed to pay in pounds ( £). The Canadians have also agreed to sell the toys to a U.S. company for U.S.$5.50 per toy. The Canadian company has agreed to accept U.S. dollars but plans to convert these revenues to Canadian dollars (C$). The Canadian company estimates its marginal costs (warehousing, travel, and so on) as C$.75 per toy.

Exchange rates at the time of signing the agreements are as follows: Canadian $1 = U.S. $ 0.80 Canadian $1 = British pound £ 0.66 Show all of your calculations:

1. Is this a good deal for the Canadian company? Why or why not?

2. What impact would a devaluation of the U.S. dollar relative to the Canadian dollar have on the Canadian company’s profits? What impact would a revaluation upward have? Use a specific example to illustrate your answer.

3. What impact would a devaluation of the British pound relative to the Canadian dollar have on the Canadian company’s profits? What impact would a revaluation upward have? Use a specific example to illustrate your answer.

4. What could the Canadian company do to minimize its exchange rate risks?

Bonus: What impact would a devaluation of the British pound relative to the U.S. dollar have on the Canadian company’s profits? Use a specific example to illustrate your answer.

Reference no: EM131014103

Questions Cloud

What is the contribution per unit- breakeven unit volume : After spending $600,000 for R&D, chemists at Cats Gone Wild have developed a new cat food called WOW-MEOW. The food will be packaged in an 8-ounce can and will be introduced to the cat food market, which is estimated to be 42 million 8-ounce cans nat..
Credit card statement you noticed several charges : After checking your credit card statement you noticed several charges that did not look familiar to you. Would you simply pay the statement and assume the charges were something you forgot about or would you make some noise? If some of the charges we..
Accepted a one-year employment term by a firm : You have recently accepted a one-year employment term by a firm. The firm has given you the option of receiving your salary as a lump sum value of $30,000 at the end of the year or as 12 monthly payments of $2,400 starting one month after you start w..
Recently accepted a one-year employment term by firm : You have recently accepted a one-year employment term by a firm. The firm has given you the option of receiving your salary as a lump sum value of $30,000 at the end of the year or as 12 monthly payments of $2,400 starting one month after you start w..
What impact would a revaluation upward have : A small Canadian company has contracted to purchase 100,000 toys for £ 3.50 each from a British company. The Canadians have agreed to pay in pounds ( £). The Canadians have also agreed to sell the toys to a U.S. company for U.S.$5.50 per toy. What im..
An investment offers the cash flows : An investment offers the following cash flows: $650 today, $750 one year from now, $900 in 2 years, and $850 in 3 years. If the relevant interest rate is 4% per year (an APR, with interest compounded annually), what is the value of the investment 3 y..
Current yield to maturity on such bonds in the market : Essex Biochemical Co. has a $1,000 par value bond outstanding that pays 13 percent annual interest. The current yield to maturity on such bonds in the market is 17 percent. Use Appendix B and Appendix D.
When an organization needs to raise long term capital : What is the impact on WACC when an organization needs to raise long term capital? vii. What is an Initial Public Offering (IPO)? How does an IPO allow an organization to grow financially? viii. When is a merger or an acquisition, rather than an IPO, ..
Capital budgeting is one of the main analysis : Capital budgeting is one of the main analysis that is done by companies to introduce a new product into the market. For example, Porsche was one of the last manufacturers to enter the sports utility vehicle market. Why one would company decide to pro..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the number of shares repurchased

Company has $5 million in cash from a recent sale of a business unit P? = $20 No= 2 million. What is the number of shares repurchased? What is the number of shares outstanding after repurchase?

  Unlevered value-what will the value of the firm

Cavo Corporation expects an EBIT of $33,000 every year forever. The company currently has no debt, and its cost of equity is 16 percent. The corporate tax rate is 35 percent. What is the current value of the company?  Suppose the company can borrow a..

  What benefits are gained from research planning and the

question 1.what benefits are gained from research planning and the analysis of financial statements? include sources

  Expected annual rate of return on the stock investment

A stock you are buying today promises no dividends for a long time. In exactly 10 years, you expect the stock will pay its first annual dividend of $1.90. At that time, you also believe the stock could be sold for $41.00. If today you can buy the sto..

  Calculate the default risk premium on bonds

NikkiG’s Corporation’s 10-year bonds are currently yielding a return of 6.75 percent. The expected inflation premium is 1.15 percent annually and the real risk-free rate is expected to be 2.50 percent annually over the next ten years. Calculate the d..

  What is the annual interest rate

Company expects to use $1,600,000 short term credit bus wants a $3,000,00 line of credit in case of unexpected events. LIBOR is 4% and the loan is priced at LIBOR plus 2.5% with Commitment fee of 0.3% on the unused portion of the line. Bank also requ..

  What is the yield to maturity-treasury strips

A Treasury STRIPS is quoted at 61.159 and has 11 years until maturity. What is the yield to maturity? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

  The initial working capital requirement

You purchased land 3 years ago for $40000 and believe its market value is now $75000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $165000, an expense that you plan to depreci..

  Current cost of common equity

Annieco's last dividend was $1.50 and is expected to grow at a 10% rate per year. The current stock price is $48. What is the current cost of common equity for this company?

  Assignment the final project for this module is a

the final project for this module is a consultancy report to anthonys orchard an expanding apple orchard and

  Firm evaluates all of projects by using npv decision rule

A firm evaluates all of its projects by using the NPV decision rule. At a required return of 12 percent, the NPV for the following project is $ ________ and the firm should accept the project. At a required return of 31 percent, the NPV is $ ________..

  What will price be immediately after next dividend payment

The C. Alice Stone Company's common stock has paid a $3 dividend for so long that investors are now convinced that stock will continue to pay that annual dividend forever. If the next dividend is due in one year and investors require 8% return on the..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd