8. Norisol Camacho owns a textile plant in Mexico, but the bulk of her raw materials come from East Texas. In 2012, her costs skyrocketed due changes in the exchange rate between the U.S. dollar and the Mexican peso. Norisol's example provides an illustration of which type of risk? a. Financial Risk b. Liability Risk c. Property Risk d. Price Risk
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- Roo-fus Inc. is an Australian dog food producer specializing in kangaroo-based dog food. It is looking to set up operations in New Zealand. The financial expert is has hired expects the following cash flows (in New Zealand Dollars): Yr0 Yr1 Yr2 Yr3 Yr4 -3.5 16.3 16.1 17.4 11.5 The corporate tax rate is 30% in Australia and in New Zealand. The risk-free rate is 2.6% in Australia and is 2.3% in New Zealand. Inflation is 3.4% in Australia and is 2.6% in New Zealand. The current spot NZD/AUD exchange rate in 0.62 NZD/AUD. The required rate of return for this type of project is 3.5% in Australia and 4.9% in New Zealand. Suppose that 42% of the funds are blocked in New Zealand where they earn no return, until one year after the project finishes. If PPP holds, what is the NPV of the project in AUD? a. 51.2406 b. 24.3896 c. 81.0104 d. 23.7699 e. 38.7798Given: A company XYZ in the United States is profitable and pays taxes. XYZ produces “widgets”, and in recent years, the cost of producing each widget has been falling because the price of raw materials has been falling. Each year for the past few years, XYZ has produced significantly more widgets each year than it has sold. True or False: XYZ would report lower Net Income on the Income Statement if it used FIFO accounting versus if it used LIFO accounting Explain your answer.Suppose you are working for a company based in Ireland (where the euro is used). This company exports product to the UK, but invoices its prices in euros (instead of pounds). Suppose you believe the euro will appreciate versus the pound over the coming year. Would that impact the profitability of your company this year? If not, explain. If so, explain how (and the type of risk you’re facing.
- Suppose Mexico is a major export market for vour U.S.-based company and the Mexican peso appreciates drastically against the US. dollar. This means: (A) This means your company products can be priced out of the Mexican market, as the peso price of A American imports will rise following the peso's fall. (B) your firm will be able to charge more in dollar terms while keeping peso prices stable. (C) your domestic competitors will enjoy a period of facing lessened price competition from Mexican imports D) both b an(d c are correcta) The Business and Financial Times currently has given the following quotes between ¢:$ as:Spot = 0.7200 – 0.72501 month forward = 0.0014 – 0.0016 premium1 month forward rate = 0.7186 – 0.7234 i. Your company currently has GH¢32,500 and wishes to import goods from America. Assuming you are the financial advisor of such company, what will be your advice? ii. Should they import now or a month’s time, assuming prices will remain constant? b) Agency problem is pervasive and exists in practically every organization whether a business, church, club, or government. Organizations try to solve it by instituting measures but no organization can remedy it completely.How would you analyze this statement within the context of a limited liability company and what are the possible remedies to this problem?Suppose that you hold a piece of land in the City of London that you may want to sell in one year. As a U.S. resident, you are concerned with the dollar value of the land. Assume that, if the British economy booms in the future, the land will be worth £18 and one British pound will be worth $1.25. If the British economy slows down, on the other hand, the land will be worth less, i.e., £23 million, but the pound will be stronger, i.e., $1.37/£. You feel that the British economy will experience a boom with a 60% probability and a slow-down with the remaining probability. Estimate the Covariance between P and S (X.XXXX)
- Suppose you live in the Fama-French three-factor model world. Goldman Sachs is selling two derivative securities to your company. Both will pay 100 million dollars over a 10 year period. Assume time value of money is zero. Security A will pay out cash that is positively correlated with economic indicators, thus paying out more when economy is booming and less when economy is tanking. Security B will pay out cash that is negatively correlated with economic indicators, thus paying out more when economy is tanking and less when economy is booming. What should be the fair valuation of these two securities at the start of this 10 year period. A<100 million; B>100 million A=B Both are smaller than 100 million and A<B Both securities should be priced lower than 100 millions. But A>BConsider a large Australian cotton farmer who has just planted her crop. Once grown, she plans to export her production to China. (a) Explain how each of the following scenarios can affect her revenue: (i) A decrease in U.S. production (the U.S. is a large exporter of cotton to China) (ii) A depreciation in the USD/AUD exchange rate (iii) An economic recession in China (b) Do you think she'll buy back thesame futures contract prior to expiry? Why/why not? (c) Which of the scenarios in (a) will no longer affect her now that she's gone short?Based in the U.S., Your firm faces a 25% chance of a potential loss of $20 million next year. If yourfirm implements new policies, it can reduce the chance of this loss by 10%, but these new policieshave an upfront cost of $300,000. Suppose the beta of the loss is 0, and the risk-free interest rate5%.ISa) If the firm is uninsured, what is the NPV of implementing the new policies?b) If the firm is fully insured, what is the NPV of implementing the new policies?c) Given your answer to question b), what is the actuarially fair cost of full insurance?d) What is the minimum-size deductible that would leave your firm with an incentive toimplement the new policies?e) What is the actuarially fair price of an insurance policy with the deductible in question d
- 39- Akkudu Ltd. is a manufacturing company that produces electronic gadgets in bulk quantities for its customers in Oman. The company was able to sustain a reasonable amount of sales in the last two quarters despite the pandemic-crisis during the last year. However, the company has faced some serious liquidity problems due to delayed payment by the customers and lower sales in the first two quarters. Hence, the company is seriously thinking about revising its working capital standards by considering the changes in the market. The finance manager of the company is seeking your help in assessing the average payment period from the following financial data. During the last year the company started its operations with an opening stock of OMR 22,000 and made a purchase of 50,000 OMR. The company has returned OMR 5000 worth material due to quality issues. During the last year, the business has paid OMR 6000 as wages. The company sold goods for a total amount of OMR 80,000 of which OMR…A Japanese firm has a contract to buy equipment from a US manufacturer for $2.20m in 30 days. The current spot rate is 110 JPY/USD. The Japanese firm has an asset/liability position in dollars. The Japanese firm faces the risk that the yen will appreciate/depreciate. How can the firm hedge this risk (be specific and detailed)?A Japanese firm has a contract to buy equipment from a US manufacturer for $2.20m in 30 days. The current spot rate is 110 JPY/USD. A. The Japanese firm has an asset/liability position in dollars. B. The Japanese firm faces the risk that the yen will appreciate/depreciate. C. How can the firm hedge this risk (be specific and detailed)?