What dollar amount did disney realize from the sale

Assignment Help Business Management

Reference no: EM131278691

In May 1988, Walt Disney Productions sold to Japanese investors a 20-year stream of projected yen royalties from Tokyo Disneyland. The present value of that stream of royalties, discounted at 6% (the return required by the Japanese investors), was ¥93 billion. Disney took the yen proceeds from the sale, converted them to dollars, and invested the dollars in bonds yielding 10%.

According to Disney's chief financial offi- cer, Gary Wilson, ‘‘In effect, we got money at a 6% discount rate, reinvested it at 10%, and hedged our royalty stream against yen fluctuations-all in one transaction.''

a. At the time of the sale, the exchange rate was ¥124 = $1. What dollar amount did Disney realize from the sale of its yen proceeds?

b. Demonstrate the equivalence between Walt Disney's transaction and a currency swap. (Hint: A diagram would help.)

c. Comment on Gary Wilson's statement. Did Disney achieve the equivalent of a free lunch through its transaction?

Reference no: EM131278691

Questions Cloud

Difference between a basis swap and a coupon swap : What is an interest rate swap? What is the difference between a basis swap and a coupon swap?- What is a currency swap?

Identify the essential hazards : After doing Exercise 7 .89, identify the essential hazards, if any, in the flow table that you developed.

Difference between using the fra and the futures contract : Explain how IBM can lock in the interest rate on this loan by using Eurodollar futures contracts. What is the major difference between using the FRA and the futures contract to hedge IBM's interest rate risk?

What are the cost savings to each party : If the parties swap their currency proceeds, with Dell paying 8.75% to Virgin for pounds and Virgin paying 7.75% to Dell for dollars, what are the cost savings to each party?

What dollar amount did disney realize from the sale : At the time of the sale, the exchange rate was ¥124 = $1.- What dollar amount did Disney realize from the sale of its yen proceeds?

Discuss an approach to engagement research : Discuss an approach to engagement research that would encompass the necessary components to your profession or industry. Itemize the areas that must be considered in the future talent pool and how one would design research that answers these quest..

What is the range of possible cost savings : Assuming a notional principal equivalent to $125 million and a current exchange rate of ¥105/$, what do these possible cost savings translate into in yen terms?

Draw an adjacency diagram for the original flow table : Assign the all-Os combination to state A. Draw an adjacency diagram for the original flow table, and write the modified flow table and another adjacency diagram to support your final state-variable assignment.

Show how seb can use eurodollar futures contracts : Show how SEB can use Eurodollar futures contracts to lock in its cost of funds for the year. What is SEB's hedged cost of funds for the year?

User Account

All Pages