Calculate the thai bhat and risk systematic, Financial Management

1) Is foreign exchange risk systematic? What are the implications of your answer regarding corporate hedging policy with respect to foreign exchange risk? In your answers make sure to discuss the possibility of divergent views on this issue between management and shareholders.

2) Do you think investors should try to diversify their domestic investment portfolios by including international assets in it? Why/why not? What is the best way to achieve the benefits (if any) of international portfolio diversification without bearing the associated costs?

3) Explain how a financial manager should account for political risk when considering a project in a foreign country. Assume that the financial manager works for a multinational firm with presence in many different countries.

4) HGK, a Thai firm, is considering starting production of high-def TVs in its U.S subsidiary for sale in the U.S. The project has a 4-year life and requires an initial investment of $6,000,000 in equipment. The equipment is to be depreciated (to zero) on a straight line basis and is expected to be sold for a market value of $500,000 at project's end. HGK is expected to produce and sell 100,000 units of its product in the U.S in each year. Variable costs are expected to be $75/unit and fixed costs $1,900,000 per year. The project requires additions to net working capital of 4,000,000 (to be recovered at project's end). HGK assigns a cost of capital of 20% to this project. The corporate tax rate in the U.S. is 39% while in Thailand it is 34%. HGK expects to break even in the US (in US $-terms).The United States imposes no restrictions on the repatriation of funds of any sort. Both Thailand and the U.S. allow a tax credit for taxes paid in the other country.

a. What is the price per unit of HGK's product in the U.S.?

b. Assume that the price of the TVs is $134.59/unit. What is the project's NPV from the Thai parent's point of view? Suppose that the current exchange rate is 20bt/$ and that it is expected to remain constant until the last year of the project (year t=4) when it is expected to be 25Bt/$.

5) Faulpeltz Gmbh. is a German subsidiary of Lazy Ltd., a British MNC. Faulpeltz is considering a 5-year project in Germany that requires an initial investment of 1,360 million Euros (EU). The project will generate cash flows of EU 450 million per year in the years 1 to 4 and EU 575 million at the end of year 5. The required rate of return for projects of similar risk in Germany is 10%, and in the U.K. is 12%. The annual inflation rate in Germany is expected to be 4.5% for the next several years. British (annual) inflation is expected to be 2.5%. The current spot exchange rate is 0.65 £/EU.

a. Calculate the NPV in £-terms from the project's (Faulpeltz Gmbh.) point of view.

b. Calculate the NPV in £-terms from the parent's (Lazy Ltd.) point of view.

c. What is your recommendation to Lazy's managers in terms of whether they should accept or reject the project?

d. Should Lazy's managers try to hedge the EU projected cash flows? Why/why not?

6) At the end of 2011 you bought 25000 shares of a Mexican stock at a price of 220 peso/share. At that time the spot exchange rate was 0.2458$/peso. Nine months later, you sold these shares for 240.5 peso/share. If your annualized US-$ rate of return on that investment was 21.5%, what was the exchange rate when you sold the Mexican shares?

7) Toshiyuki Matsukawa is production manager for Tanaka Chemicals, a Japanese chemical manufacturer operating throughout Asia. He is considering a proposal to build a chemical plant in Thailand to service the growing Southeast Asian market. the project information is as follows:

- The exchange rate is currently S0Bt/¥ = 0.2500 Bt/¥.
- The manufacturing plant will cost Bt 4 million and will take one year to construct. assume the Bt 4 million cost will be paid in full at the end of the year (at t=1).
- The real value of the manufacturing plant is expected to remain at Bt 4 million throughout the life of the project. The plant is to be sold at project's end.
- Production begins in one year (at t=1) with annual; revenues of Bt 1000 million per year (in nominal terms) over the 4-year life of the project. fixed expenses are contractually fixed in nominal terms at Bt 5million each year over the life of the project. Variable costs are 90 percent of gross revenues. assume end-of-year cash flows.
- The plant will be owned by a subsidiary in Thailand and will be depreciated to zero on a straight line basis.
- Taxes are 40% in Thailand.
- annual inflation is expected to be 105 in Thailand and 5% in Japan.
- The required rate of return on similar projects in Thailand is 20%.
- Assume that the international parity conditions hold.

a. Calculate the Thai Bhat (Bt) value of this investment proposal from the local (Thai) point of view.
b. What is the nominal required rate of return for similar projects in Japan?
c. Identify the expected future spot exchange rates for each cash flow.
d. Calculate the yen value of the project from the local and parent perspective. Are the answers equivalent? Why?

Posted Date: 2/20/2013 12:36:30 AM | Location : United States







Related Discussions:- Calculate the thai bhat and risk systematic, Assignment Help, Ask Question on Calculate the thai bhat and risk systematic, Get Answer, Expert's Help, Calculate the thai bhat and risk systematic Discussions

Write discussion on Calculate the thai bhat and risk systematic
Your posts are moderated
Related Questions
Work out and submit the comprehensive problem below. Halstrom Corporation purchased a piece of equipment three years ago for $230,000. It has an asset depreciation

Market Value Ratios Price-Earnings Ratio P/E ratio shows how much investors are willing to pay for earnings per share of the company. Market-to-Bo

Q. What is Cost Recovery Method? Cost Recovery Method - METHOD OF REVENUE RECOGNITION that identifies profits after costs are entirely recovered. Normally used only when the to

What are the benefits and drawbacks of financial hedging of the firm’s operating exposure vis-a-vis operational hedges (like relocating manufacturing site)? Answer:  Financial he

Can you help me out on the Time value of money????? I need urgent help on this topic...

Q. Credit Standards for Formulation of Optimum Credit Policy? Credit Standards: - Credit standards are the essential criteria set for extension of credit to customers. Decision

The following treasury issues can be included for the construction of the curve: On-the-run treasury issues. On-the-run treasury issues and sele

An Investor can receive income from this source when the bonds purchased at discount are held up to maturity or when he sells the bond before ma

sk company had the following balance sheets and income statements over the last 3 years

Define the meaning of Overtrading When  a  company  is  trading  at  a  very  fast  pace,  it  would be  generating  sales  on  credit  with  speed, so have a large volume of t