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(a) Suppose that a factor will buy an exporter’s receivables at a 3.5% per month discount. In addition the factor will charge an extra 2.75% fee for non-recourse financing. If the exporter decides to factor $2.5 million in 180-day receivables, how much will the exporter receive? If the financing is with recourse, will the amount received by the exporter be different? Explain with quantitative evidence.
(b) Find the annual percentage rate of return for the factor in both the recourse and non- recourse financing.
(c) Diamond company based in the U.S will receive two million pounds tomorrow for its exports to an importer in London. It wants to determine its maximum one day loss (due to potential decline in the value of the pound) based on a 99% confidence interval. The firm estimated the standard deviation of the daily percentage change in the pound during the previous 90 days and the result was 2.5 %. If the firm expects the percentage change in the pound to fall by 1.2 %, find the value of the pound based on the maximum one day loss given that the spot rate for the pound is $1.62. Also determine the potential dollar loss for the Diamond company.
Prince Publications Ltd (PPL) wishes to estimate its weighted average cost of capital. It has two sources of capital: ordinary shares and 5-year bonds.
Which of the following is not one way that the company can use to hedge its exchange rate risk? What happens to the company’s profit if the dollar strengthens?
Determine an estimated return (ATIRRe) for a limited partner. - Determine an estimated return (ATIRRe) for the general partner.
Jonah’s Fishery has EBITDA of $67 million. Jonah’s market value of equity and debt is $433 million and $40 million, respectively. Jonah has cash on the balance sheet of $16 million. What is Jonah’s EV ratio?
A firm evaluates all of its projects by using the NPV decision rule. Year Cash Flow 0 –$25,000 1 21,000 2 17,000 3 6,000 Required: (a) At a required return of 13 percent, what is the NPV for this project? (b) At a required return of 41 percent, what ..
What effect do increasing inflation expectations have on the required returns of investors in common stock?
A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs=10.5%, and the expected constant growth rate is g=6.4%. What is the stock's current price?
What is the value of the short position at this time?
Chip’s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 90 percent as high if the price is raised 10 percent. What ..
According to the article "Pitfalls in Evaluating Risky Projects" by James E. Hodder, What are the three pitfalls that can be encountered when the DCF methodis used to make decisions?
The bonds for Alpha Corp are $1,000 face value with a 5% coupon rate, paid semiannually, and currently trade at $985. The bonds will mature in 8 years. The firm is in 40% tax bracket. You have estimated the market risk premium to be 6% and yield on 1..
Differentiate between a strategy of market (price) skimming and market (price) penetration.
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