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A New Zealand company has a foreign denominated asset in United States dollars worth US$600,000 on the 1 July 2016. The US debtor is due to repay this debt to the New Zealand company over the next 12 months. The repayments are scheduled to take place during the following date. The Spot rate is NZ$ = US$0.72 and the indicative future spot rates are shown in the table below. Installment 1: 1 October, 2016 (US$150,000) (NZ$ = US$0.71) Installment 2: 1 January, 2017 (US$150,000) (NZ$ = US$0.73) Installment 3: 1 April, 2017 (US$150,000) (NZ$ = US$0.75) Installment 4: 1 July 2017 (US$150,000) (NZ$ = US$0.77) Required: a) Describe the risk exposure that the company faces in the above situation. b) Assuming the company were to hedge its risk, what type of hedge would be more appropriate in this situation. Given reasons for your recommendation. c) Assume the company is able to hedge the identified risk with a forward rate contract with a negotiated rate of NZ$ = US$0.74. a. Identify the hedged item and hedge instrument b. Prepare the journal entries to capture the four installments (receipts) d) Assume the company are able to partner with another company to secure a swap contract that is potentially beneficial to both parties. a. Describe the circumstances that the other party may be facing and the motivation that they would have to enter into such an arrangement. b. Describe what each party to the contract would effectively be required to do under this swap contract. c. Prepare the journal entries to capture the swap contract for the first and second installment. Other Information: • Assume the swap contract between the two parties is exactly matched so that their exposure is exactly offset. • When calculating the journal entries, assume the future spot rates are as provided in the above table • The US borrowing rate is 5% while the New Zealand deposit rate is 4%.
A project with a profitability index of 1.156 also has net cash flows with a present value of $46,240. The project's internal rate of return was 10%. The initial investment was
that us parent company abc has a subsidiary xyz in outer mongolia. xyzs total assets are as follows in mongolian
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Calistoga Produce estimates bad debt expense at ½% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $471,000 and $1,650, respectively, at December 31, 2012. During 2013, Calistoga's credit sales an..
The Swift Meal has two restaurants that are open 24 hours a day. Fixed costs for the two restaurants together total $ 456,000 per year. Service varies from a cup of coffee to full meals. The average sales check per customer is $ 9.50. Compute the rev..
following is information taken from the accounting records of kagawa company at the end of 2009.- net sales 660000-
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