Calculate the expected annual cost of financing

Assignment Help Finance Basics
Reference no: EM132202904

Martha, Inc., a U.S. company is considering issuing a Singapore dollar denominated bond at its present coupon rate of 6 percent, even though it has no incoming cash flows to cover the bond payments. It is attracted to the low financing rate, since U. S. dollar-denominated bonds issued in the United States would have a coupon rate of 10 percent. Assume that either type of bond would have a 4-year maturity and could be issued at par value. Marta needs to borrow $12 million. Therefore, it will either issue U. S. dollar denominated bonds with a par value of $12 million or bonds denominated in Singapore dollars with a par value of S$16 million. The spot rate of the Singapore dollar is $.75. Martha has forecasted the Singapore dollar's value at the end of each of the next four years, when coupon payments are to be paid:

Year 1 $0.76

Year 2 $0.77

Year 3 $0.79

Year 4 %0.78

(1) Calculate the expected annual cost (as a percentage) of financing with Singapore dollars.  

(2) Should Martha, Inc., issue bonds denominated in U.S. dollars or Singapore dollars? Why?

Reference no: EM132202904

Questions Cloud

What is the net present value of the project : If the investment is 100 million, what is the net present value (NPV) of the project?
Explain the differences between accounts payable : Explain the differences between accounts payable, short-term debt, current maturities of long-term debt, accrued liabilities and unearned revenue.
Ethical behavior and help limit scenarios : What are some things firms can do to promote ethical behavior and help limit scenarios where there are no clear rules or regulations?
Income statement in financial decision making : Explain what's the importance of the balance sheet and income statement in financial decision making.
Calculate the expected annual cost of financing : (1) Calculate the expected annual cost (as a percentage) of financing with Singapore dollars.
Two capital budgeting methods : Which should the company doand why? You must use at least two capital budgeting methods. Show your work.
Describe the behavior of stocks : Describe the behavior of stocks with ßs of greater than one, less than one, and less than zero
Return on equity for similar stocks : The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 15%. What is P0? (Show workings)
Foreign affiliates of multinational firms : What allegations are sometimes made against foreign affiliates of multinational firms and against the multinational firms themselves?

Reviews

Write a Review

Finance Basics Questions & Answers

  Calculate the firm operating cycle

The firm has annual sales of $36 million, its cost of goods sold represents 75% of sales, and its purchases 70% of cost of goods sold.

  Determine required rate of return

The current dividend yield on Clayton's Metals common stock is 3.2%. The company just paid a $1.48 yearly dividend and announced plans to pay $1.54 next year.

  Calculate the amount of the firm gross profit

Evening Story Corporation has sales of $4,279,620; income tax of $558,963; the selling, general and administrative expenses of $243,460; depreciation of $398,800; cost of goods sold of $2,444,780; and interest expense of $130,916. Calculate the am..

  What is the highest dividend tax rate of an investor

What is the highest dividend tax rate of an investor

  What bid price should you submit on the contract

If your tax rate is 34 percent and your required return on this project is 12 percent, what bid price should you submit on the contract

  What will the year 1 operating cash flow for this project be

Depreciation is computed using MACRS over a 5-year life, and the cost of capitial is 9 percent. Assume a 40 percent tax rate. What will the year 1 operating cash flow for this project be?

  What is the weighted average cost of preferred stock

The Class A shares are currently selling at $81 a share and the Class B shares are currently selling at $56 a share.

  What is the present cost in the following scenario initial

what is the present cost in the following scenario initial cost 75000 annual revenue 50000-annual expense 60000 salvage

  Find the receipt showing the cost basis of industrial oven

During an audit of ABC company an IRS agent could not find the receipt showing the cost basis of an industrial oven.

  Sending the statements? electronically

If the interest rate is 0.48 % what is the present value of eliminating this cost by sending the statements? electronically?

  The firm will also incur expenses in the amount of 150000

security brokers inc. specializes in underwriting new issues by small firms. on a recent offering of beedles inc. the

  How do you effectively recruit employees

How do you effectively recruit employees? Please provide references to refer back to.

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