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Financial managers may want to protect their corporation against the financial risks that a fluctuation in the market price of cost drives or other company fundamentals. A commercial airliner whose operating cost is 25-30 % depended on the price of jet fuel may want to safeguard against the fluctuation of the price of crude oil. A US corporation having anywhere between 15-20 % of its sales in Canadian Dollars may want to safeguard against the currency fluctuation. A textile wholesaler specializing in knits, whose products typically contain 35-100 % cotton may want to safeguard against the fluctuation in the price of cotton. The managers entrusted with the financial management of these corporations may decide to institute programs that would enable to hedge all or part of the company’s exposure to the above cost drivers or currency exposures for the respective firms. Is there any methodology by which we can predict within certain parametersthe price ranges of the abovementioned cost drivers or fundamentals? What financial instruments should the respective managers purchase? Should the manager buy one such financial instrument or should they layer them based on respective value and length of time? What would be advantages and dis-advantages on either side? Many derivatives and hedging financial instruments are typically private agreements between a financial institution and a corporation. These derivatives stand in the boarder of Private Markets (prime financial instrument example for these markets, Asset Backed Corporate Loan), and public markets (prime examples of financial instrument examples for these markets are publicly traded corporate stocks and bonds). Typically these derivative financial instruments will not be embodied into securities and traded, so they are not required to be standardized. Nevertheless the Financial Industry does in effect apply such standardization. Often the contract of these financial instruments has a non-negotiable master agreement and then ISDA suggested clauses which are standardized in the agreement between the offer of the derivative (typically an investment bank, a commercial bank or a corporate financial services provider). What are some major benefits of this standardization? What are the financial institution achieving in standardizing all such contracts with a specific client?
Your company manufactures sports equipment. You are considering replacing a brand of golf clubs with a new line of golf clubs. which of the following is not considered to be an incremental cash flow in your capitol budgeting analysis?
Suppose you were a member of the Duff, Indiana City Council and wanted to build a sports stadium that, while economically unviable, would promote your name long enough to run for the governorship. In this case you would want to use a ________ to fund..
Teddy's Pillows has beginning net fixed assets of $466 and ending net fixed assets of $540. Assets valued at $314 were sold during the year. Depreciation was $32. What is the amount of net capital spending?
Suppose your company needs to raise $38 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you’re evaluating two issue alternatives: A 8 percent semiannual coupon bond an..
All of the following are ISO commercial crime coverage exclusions except. A financial instrument that's value is based on an underlying security or commodity is called a/an?
Could I Industries just paid a dividend of 1.10 per share. The dividends are expected to grow at a 20% rate for the next 6 years and then level off to a 4% growth rate indefinitely. If the required rate is 12%, what is the value of the stock today?
Ogden Mear did an excellent job saving for retirement. He was able to save $1,000,000 in an account that pays 5 percent per year. His plan was to eventually withdraw all his money by paying himself in equal installments every six months for the next ..
Archer Contracting repaved 35 miles of fourlane interstate roadway working 10 days with a crew of five employees using $7890 of paving material. Nearby, Bronson Contracting repaved 50 miles of two-lane county roadway with a crew of six employees.
Bourdon Software has 9.6 percent coupon bonds on the market with 20 years to maturity. The bonds make semi annual payments and currently sell for 107.6 percent of par. What is the current yield on the bonds? What is the effective annual yield?
You purchase 950 shares of 2nd Chance Co. stock on margin at a price of $29. Your broker requires you to deposit $18,500. 1. Suppose you sell the stock at a price of $37. What is your return? What would your return have been had you purchased the sto..
What proportion of a firm is equity financed if the WACC is 14%, the after-tax cost of debt is 7.0%, the tax rate is 35%, and the required return on equity is 18%?
A firm's cost of capital will generally increase if the firm lowers its debt-equity ratio. The cost of equity will generally increase for risky firms when the risk-free rate of return increases. An increase in which one of the following is most apt t..
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