Solve the following problems (No need to show process, just results and answer to the question)   1) Maria? Gonzalez, Ganado's Chief Financial? Officer, estimates the? risk-free rate to be 4

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Solve the following problems (No need to show process, just results and answer to the question)

 

1) Maria? Gonzalez, Ganado's Chief Financial? Officer, estimates the? risk-free rate to be 4.00%?, the? company's credit risk premium is 3.90?%, the domestic beta is estimated at 1.05?, the international beta is estimated at 0.89?, and the? company's capital structure is now 65?% debt. The expected rate of return on the market portfolio held by a? well-diversified domestic investor is 9.70?% and the expected return on a larger globally integrated equity market portfolio is 8.60%. The? before-tax cost of debt estimated by observing the current yield on? Ganado's outstanding bonds combined with bank debt is 8.50?%

and the? company's effective tax rate is 39?%. For both the domestic CAPM and? ICAPM, calculate the? following: 

a.? Ganado's cost of equity 

b.? Ganado's after-tax cost of debt 

c.? Ganado's weighted average cost of capital

 

2) Maria? Gonzalez, Ganado's Chief Financial? Officer, estimates the? risk-free rate to be 3.90%?, the? company's credit risk premium is 3.80?%, the domestic beta is estimated at 1.11?, the international beta is estimated at 0.95?, and the? company's capital structure is now 65?% debt. The? before-tax cost of debt estimated by observing the current yield on? Ganado's outstanding bonds combined with bank debt is 8.30?% and the? company's effective tax rate is 42?%. Calculate both the CAPM and ICAPM weighted average costs of capital for the following equity risk premium estimates.

 

a. 8.10?%

b. 7.10?%

c. 5.30?%

d. 4.40?%

 

3)The Copper Mountain? Group, a private equity firm headquartered in? Boulder, Colorado, borrows ?£5,200,000 for one year at 7.125?% interest.

 

a. What is the dollar cost of this debt if the pound depreciates from ?$2.0210?/£ to ?$1.9440?/£ over the? year?

b. What is the dollar cost of this debt if the pound appreciates from $2.0210?/£ to ?$2.1620?/£ over the? year?

 

4) Morning Star? Air, headquartered in? Kunming, China, needs US$29,000,000 for one year to finance working capital. The airline has two alternatives for? borrowing:

 

a. Borrow ?US$29,000,000 in Eurodollars in London at 7.25?% per annum

b. Borrow ?HK$231,509,900 in Hong Kong at 7.00?% per? annum, and exchange these Hong Kong dollars at the present exchange rate of ?HK$7.9831?/US$ for U.S. dollars.

 

At what ending exchange rate would Morning Star Air be indifferent between borrowing U.S. dollars and borrowing Hong Kong? dollars?

 

5) Westminster Insurance Company plans to sell ?$2,200,000 of eurocommercial paper with a 75?-day maturity and discounted to yield 4.90?% per annum. What will be the immediate proceeds to Westminster? Insurance? Assume a? 360-day year.

 

6) Petrol? Ibérico, a European gas? company, is borrowing ?$650,000,000 via a syndicated eurocredit for six years at 100 basis points over LIBOR. LIBOR for the loan will be reset every six months. The funds will be provided by a syndicate of eight leading investment? bankers, which will charge? up-front fees totaling 1.2?% of the principal amount. What is the effective interest cost for the first year if the annual LIBOR is 4.30?% during the first six months and 4.50?% during the second six months.

 

7) Assume Nikken Microsystems has sold Internet servers to Telecom? España for €691,000. Payment is due in four months and will be made with a trade acceptance from Telecom? España Acceptance. The acceptance fee is 1.2% per annum of the face amount of the note. This acceptance will be sold at a 3.7% per annum discount. What is the annualized percentage?all-in-cost in euros of this method of trade? financing? ? (NOTE: Assume a? 360-day year.)

 

8) Assume Nikken Microsystems has sold Internet servers to Telecom? España for €685,000. Payment is due in four months and will be made with a trade acceptance from Telecom? España Acceptance. The acceptance fee is 1.3% per annum of the face amount of the note. This acceptance will be sold at a 3.7% per annum discount. Also assume that Nikken Microsystems prefers to receive U.S. dollars rather than euros for the trade transaction. It is considering two? alternatives: 1) sell the acceptance for euros at once and convert the euros immediately to U.S. dollars at the spot rate of exchange of $1.02/€ or? 2) hold the euro acceptance until maturity but at the start sell the expected euro proceeds forward for dollars at the 4?-month forward rate of $1.04/€.

a. What are the U.S. dollar net proceeds received at once from the discounted trade acceptance in alternative? 1?

b. What are the U.S. dollar net proceeds received in four months in alternative? 2?

c. What is the? break-even investment rate that would equalize the net U.S. dollar proceeds from both? alternatives?

d. Which alternative should Nikken Microsystems? choose??(NOTE: Assume a? 360-day year.)

 

9) Motoguzzie exports? large-engine motorcycles? (greater than? 700cc) to Australia and invoices its customers in U.S. dollars. Sydney Wholesale Imports has purchased $2,950,000 of merchandise from? Motoguzzie, with payment due in

seven months. The payment will be made with a? bankers' acceptance issued by Charter Bank of Sydney at a fee of 1.78%

per annum. Motoguzzie has a weighted average cost of capital of 10.5%. If Motoguzzie holds this acceptance to? maturity, what is its annualized percentage? all-in cost? ? (NOTE: Assume a? 360-day year.)

 

10) Motoguzzie exports? large-engine motorcycles? (greater than? 700cc) to Australia and invoices its customers in U.S. dollars. Sydney Wholesale Imports has purchased $2,900,000 of merchandise from? Motoguzzie, with payment due in

five months. The payment will be made with a? bankers' acceptance issued by Charter Bank of Sydney at a fee of 1.75%

per annum. Motoguzzie has a weighted average cost of capital of 9.4%. Bank of America is willing to buy? Motoguzzie's bankers' acceptance for a discount of 6.1% per annum. What would be? Motoguzzie's annualized percentage? all-in cost of financing its $2,900,000 Australian? receivable? ? (NOTE: Assume a? 360-day year.)

 

11) Avon is a? U.S.-based direct seller of a wide array of products. Avon markets leading? beauty, fashion, and home products in more than 100 countries. As part of the training in its corporate treasury? offices, it has its interns build a spreadsheet analysis of the following hypothetical subsidiary? earnings/distribution analysis. Use the tax analysis presented in the popup window for your basic? structure.

 

Baseline Values	Case 1		Case 2
a Foreign corporate income tax rate	28?%		45?%
b U.S. corporate income tax rate	36?%		36?%
c Foreign dividend withholding tax rate	?15%		?0%
d U.S. ownership in foreign firm	?100%		?100%
e Dividend payout rate of foreign firm	?100%		?100%
Foreign Subsidiary Tax Computation
1 Taxable income of foreign subsidiary	?$3,300,000		?$3,300,000
2 Foreign corporate income tax	?(924,000?)		?(1,485,000?)
3 Net income available for distribution	?$2,376,000		?$1,815,000
4 Retained earnings	0		0
5 Distributed earnings	2,376,000		1,815,000
6 Distribution to U.S. parent company	2,376,000		1,815,000
7 Withholding taxes on dividends	356,400		0
8 Net remittance to U.S. parent	?$2,019,600		?$1,815,000
U.S. Corporate Tax Computation on Foreign Income
9 Dividend received before withholding	?$2,376,000		?$1,815,000
10 Add back foreign? deem-paid tax	924,000		1,485,000
11 ? Grossed-up foreign dividend	?$3,300,000		?$3,300,000
12 Tentative U.S. liability	1,188,000		1,188,000
13 Less credit for foreign taxes
a foreign income taxes paid	?(924,000?)		?(1,485,000?)
b foreign withholding taxes paid	?(356,400?)		?(0?)
c total	?($1,280,400?)		?($1,485,000?)
14 Additional U.S. taxes due	?$0		?$0
15 Excess foreign tax credits	92,400		297,000
16 ? After-tax income from foreign subsidiary	?$2,112,000		?$2,112,000

a. What is the total tax? payment, foreign and domestic? combined, for this? income?

b. What is the effective tax rate paid on this income by the? U.S.-based parent? company?

c. What would be the total tax payment and effective tax rate if the foreign corporate tax rate was 42?% and there were no withholding taxes on? dividends?

d. What would be the total tax payment and effective tax rate if the income was earned by a branch of the U.S.? corporation?

 

12) McDougan? Associates, a? U.S.-based investment? partnership, borrows €75,000,000 at a time when the exchange rate is

?$1.3366?/€. The entire principal is to be repaid in three? years, and interest is 6.450?% per? annum, paid annually in euros. The euro is expected to depreciate? vis-à-vis the dollar at 2.6?% per annum. What is the effective cost of this loan for?McDougan?

 

Complete the following table to calculate the dollar cost of the? euro-denominated debt for years 0 through 3. Enter a positive number for a cash inflow and negative for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to four decimal? places.)

		Year 0		Year 1		Year 2		Year 3
Proceeds from borrowing euros	€	75,000,000
Interest payment due in euros			€		€		€
Repayment of principal in year 3								(75,000,000)
Total cash flow of euro-denominated debt	€		€		€		€
Expected exchange rate, $/€		1.3366
Dollar equivalent of euro-denominated cash flow	$		$		$		$