Chapter 15, Problem 16QA

The Group CFO of Munitenge Bwino Plc is exploring investment options on the €200,000 the company was recently awarded by the European Court of Justice over wrong assessment issued by the Tax Authority for their wholly owned subsidiary operating in Europe. The CFO is convinced that buying €200,000 at $2.50 per euro in three months’ time is the best option. a)Compute the possible loss at the end of three months if the euro was worth $1.90b) How much would Munitenge Bwino Plc receive from counterparty to this forward contract if the euro dollar exchange rate was $3 at the end of three monthsc) On advice from the company’s investments department, the CFO is considering a short position with a settlement price on a Musaninyonze EUR futures contract is $3.40/EUR. Munitenge Bwino Plc has been asked to deposit $20,000 in the performance bond account. The next three days’ settlement prices are $3.20, $3.30, and $3.05. Calculate the changes in the performance bond account from daily…

An acquiring firm is analyzing the possible acquisition of a target firm. Both firms have no debt. The acquiring firm believes the acquisition of the target firm will increase its total after-tax annual cash flow by $3.4 million per year forever. The appropriate discount rate for the incremental cash flows is 11 percent. The current market value of the target firm is $95 million, and the current market value of the acquiring firm is $160 million. if the acquiring firm pays $110 million in cash to the target firms shareholders. What is the net present value of the acquisition?

The Group CFO of Munitenge Bwino Plc is exploring investment options on the €200,000 the company was recently awarded by the European Court of Justice over wrong assessment issued by the Tax Authority for their wholly owned subsidiary operating in Europe. The CFO is convinced that buying €200,000 at $2.50 per euro in three months’ time is the best option.Required:a) Compute the possible loss at the end of three months if the euro was worth $1.90; b) How much would Munitenge Bwino Plc receive from counterparty to this forward contract if the euro dollar exchange rate was $3 at the end of three months; c) On advice from the company’s investments department, the CFO is considering a short position with a settlement price on a Musaninyonze EUR futures contract is $3.40/EUR. Munitenge Bwino Plc has been asked to deposit $20,000 in the performance bond account. The next three days’ settlement prices are $3.20, $3.30, and $3.05. Calculate the changes in the performance bond account from daily…