What will that do to our sourcing costs

Assignment Help Financial Management
Reference no: EM131354502

Assume the exchange rate is such that a US dollar is currently worth A$1.15 (A$ is Australian dollars).

a. If a company is sourcing materials from Australia and is contracted to pay A$27.5 million next year, what is that equivalent in US dollars?

b. Suppose inflation in Australia is expected to be 2% while US inflation is expected to be 7% over the course of the next year. Use one of the theories from the chapter (and explain it) to predict what the value of a US Dollar will be in A$ at this time next year.

c. What will that do to our sourcing costs? (calculate the new number)

d. Suppose instead that we knew that Australian interest rates are 5.6% and U.S. interest rates are 4.4%. What would the Forward exchange rate have to be in order to make the return of investing in the U.S. equal to the covered return of investing in Australia?

e. What will that do to our sourcing costs? (calculate the new number)

Reference no: EM131354502

Questions Cloud

Under what circumstances will the put option be exercised : Suppose that a European put option to with a strike price price of $70 costs $5 and is held until expiration. Under what circumstances will the put option be exercised? Under what circumstances the seller of the put option make a profit?
Capital structure consists solely of debt-common equity : Hook Industries' capital structure consists solely of debt and common equity. It can issue debt at rd = 11%, and its common stock currently pays a $3.25 dividend per share (D0 = $3.25). The stock's price is currently $21.25, its dividend is expected ..
What is its cost of common equity : The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $26.25 per share; its last dividend was $1.80; and it will pay a $1.89 dividend at the ..
What is your estimate of callahan cost of common equity : The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $26.25 per share; its last dividend was $1.80; and it will pay a $1.89 dividend at the ..
What will that do to our sourcing costs : Assume the exchange rate is such that a US dollar is currently worth A$1.15 (A$ is Australian dollars). If a company is sourcing materials from Australia and is contracted to pay A$27.5 million next year, what is that equivalent in US dollars? What w..
Well-diversified portfolio of high-quality-large-cap stocks : Nick Fitzgerald holds a well-diversified portfolio of high-quality, large-cap stocks. The current value of Fitzgeralds portfolio is $735,000, but he is concerned that the market is heading for a big fall (perhaps as much as 20%) over the next three t..
What is holmes after-tax cost of debt : The Holmes Company's currently outstanding bonds have a 8% coupon and a 14% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is Holmes's after-tax..
What is the risk neutral probability of an up movement : A binomial tree with three-month time steps is used to value a currency option. The domestic and foreign risk-free rates are 2% and 4% respectively. The volatility of the exchange rate is 20%. What is the risk neutral probability of an up movement? W..

Reviews

Write a Review

 

Financial Management Questions & Answers

  Saving account worth

You deposit $1,000 today in a savings account that pays 3.5% interest annually. How much will your savings be worth at the end of 25 years if you keep re-investing the interest at 3.5% annually?

  What is the after tax salvage value

Your firm needs a machine which costs $260,000, and requires $41,000 in maintenance for each year of its 5 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 5-year class life category. Assume a tax rate of 30% ..

  What is the amount of the firms total stockholders equity

Purple Dalia, Inc. has the following balance sheet statement items: current liabilities of $605,742; net fixed and other assets of $1,990,510; total assets of $3,013,480; and long-term debt of $728,980. What is the amount of the firm’s total stockhol..

  What will be the required return on your portfolio

You have been managing a $5 million portfolio that has a beta of 1.00 and a required rate of return of 12%. The current risk-free rate is 5.00%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.70, what wi..

  Taking into account the deduction of the service charge

A bond with a $100 par value has a 5.25% annual coupons and is due to mature at the end of 16 years. The bond will be redeemed at maturity for an amount equal to its par value less a service charge. A prospective purchaser offers a price that will pr..

  Conducted taste tests for a new coffee product

A company that franchises coffee houses conducted taste tests for a new coffee product. The company prepared four blends and randomly chose individuals to do a taste test and state which of the four blends they liked best. Results of the taste test f..

  What is expected return on portfolio-invested in two assets

A stock has a beta of .7 and an expected return of 17 percent. A risk-free asset currently earns 4.8 percent. What is the expected return on a portfolio that is equally invested in the two assets? If a portfolio of the two assets has a beta of 1.27, ..

  Discussion of risk and work towards practical application

We will start with a discussion of risk and work towards practical application of the model. The textbook provides a list of betas for a selection of stocks. Choose a few firms from that list and discuss whether the betas are what you would expect. B..

  What is expected rate of return on stock with beta

The risk-free rate of return is 5.2 percent and the market risk premium is 13 percent. What is the expected rate of return on a stock with a beta of 1.5? 12.35 percent 24.70 percent 19.50 percent 20.80 percent 10.40 percent

  Earn on a one-year risk-free us security

The spot rate for the Japanese yen currently is ¥107 per $1. The one-year forward rate is ¥106 per $1. A risk-free asset in Japan is currently earning 7 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free U.S. secur..

  What is her net gain or loss on this investment

Assume your cousin purchased five WXO 23 call option contracts at a quoted price of $.34. What is her net gain or loss on this investment if the price of WXO is $28 on the option expiration date?

  Discuss the legal concepts of express and implied warranties

Discuss the legal concepts of “express” and “implied” warranties (pages 447-448 and 458-463of the text) and relate these concepts to the biblical instructions concerning business responsibility for the performance of, and damages caused by, products ..

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