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a) Microsoft, whose global sales are generally dollar denominated, finds it has excess cash of $750,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 4.5% or a three-year Euro denominated deposit paying 5.5% since it expects the Euro to depreciate 1% per annum against the dollar over the next three years. Using cash flow analysis, determine in which currency Microsoft should invest. Be sure to show your complete calculations of the annual return and conversion of Euro back to dollars at the end of the three-year term. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rates. Would your answer change if Microsoft revised its outlook for the Euro to depreciate 1.25% per year?
b) British Oxygen whose global sales are generally dollar denominated needs to borrow $50,000,000 for working capital and intends using a 5-year multi-currency revolving credit. It can borrow in US$ at 8.5% p.a. or in SFr at 5.5% p.a. However, it expects the SFr to appreciate on average 4% p.a. over the next five years. Using a cash-flow analysis determine in which currency BOC should borrow. Would your answer change if BOC could issue SFr commercial paper supported by the revolving credit at 3.5%?
Suppose a firm compensates its CEO according to I = 250,000 + 0.0317 X + 0.01 Y, where I = total compensation of the CEO, X = company profits (in millions), and Y = Sales (in millions). Assume that X = $10 (millions), and Y = $20 (millions).
In the town of Woodland, California, there are many dentists but only one eye doctor. The market demand curve for eye exams is P = 115 - 2Q, marginal revenue is MR = 115 - 4Q and the marginal cost for an eye exam is constantly $35.
You borrowed $12,000 to buy a new car from a bank at an interest rate of 9% compounded monthly. This loan will be repaid in 48 equal monthly installments over four years. Immediately after the 20 th payment, you desire to pay the remainder of the ..
In Milky Way Galaxy, a class of 2,000 students took a course in Astronomy. The 1st exam scores and final exam percentage reached earth, but transmission broke off after only a dozen students' scores were received.
For a particular good that is monopolized, the monopolist faces the following demand and cost conditions: P= 12 - 2 qd MR= 12-4qd MC= 2 q a) What price will the firm charge its customers b) Will the firm earn positive economic profits
A researcher has developed the following regression equation to predict the prices of luxurious Oceanside condominium units, Picture , where Price = the price of a unit (in $thousands), Size = the square footage (in square feet), View = a dummy varia..
a couple just had a baby. How much should they invest now at 5.2% compounded daily in order to have $30,000 for the child's education 17 years from now Compute the answer to the nearest dollar.
Today you have a savings account of $15 620. Based on an annual interest rate of 4.2%, what equal amount can you withdraw from the account at the end of each month for three years and leave $4 000 in the account
A packaging company needs to know the rate of return on a process which will cost $60,000, have an income of $25,000 per year, have an operating cost of $5,600 per year, and have a salvage value of $7,000 at the end of its five year life.
The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. Rent-to-Own's required rate of return is 8%.
Because people dislike commuting to work, homes closer to employment centers tend to be more expensive. The price of a home in a given employment center is $60 per day. The daily rental price for housing drops by $2.50 per mile for each mile farth..
a firm produces digital watches on a single production line serviced during one daily shift. The total output of watches depends directly on the number of labor hours employed on the line. Maximum capacity of the line is 120,000 watches per month.
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