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Cray Research sold a supercomputer to the Max Planck Institute in Germany on credit and invoiced €10 million payable in six months. Currently, the six-month forward exchange rate is $1.10/€ and the foreign exchange adviser for Cray Research predicts that the spot rate is likely to be $1.05/€ in six months.
a. What is the expected gain/loss from a forward hedge?
b. If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? Why or why not?
c. Suppose the foreign exchange adviser predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? Why or why not?
The bonds mature in 17 years, have a face value of $892, and sell at 102 of par. What is the capital structure weight of the common stock?
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