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
PRC Company, a retailer of baby clothes and toys, has been in existence for 20 years. Its approach to strategy has tended to be informal and emergent rather than planned. However,

The purchase price is expected to be in the region of £30m - £40m now (year 0 ?? 2003) and further cash flow effects might include: ?? Annual cash inflows from New You ?? in a rang

Bonds with Warrants: Warrants are usually attached with the bonds or preference shares to attract the investor. The objective is to induce the potential investors to subscribe

Portfolio Classification of Mutual Funds Mutual Funds differ with reference to the type of instruments in which the money has been invested as per the requirements of the inves

Determine the term- Time Value of Money If an individual behaves rationally, then he wouldn't equate money in hand today with same value a year from now. As a matter of fact, h

The financial manager of A ltd.co. expects that its EBIT in the current year is 10,000. The firm has 5% Deb. Amounting to Rs. 40,000., while 10% Pref. Share amounts to Rs. 20,000.


A floater where the coupon rate is computed as a fraction of the reference rate plus a quoted margin, are known as a de-leveraged floater. The general formula for this

a. Why do prices of low coupon bonds tend to fluctuate more than the prices of high coupon bonds? And why do prices of longer te$ to maturity bonds tend to fluctuate more than th

Cost of Retained Earning: - It is on occasion argued that retained earnings carry no cost since a firm isn't required to pay dividend on retained earnings. Nevertheless this isn't