1- AvantiMedia’s Accounting Exposure:
Assume that on June 21, 2012, the Euro unex¬pectedly depreciated by 10% to all foreign currencies.
T¬ranslate the balance sheet into dollars, using the current rate method and the monetary-non-monetary method assuming that:
Plant and equipment, long-term debt, and common stock were entered on books at a time in the past when the exchange rate was €1.10/$. Inventory was purchased or manufactured during the prior quarter when the average exchange rate was €0.88/$.
2- AvantiMedia’s Economic Exposure:
Assume that on June 21, 2012, before any commercial activity begins, the Euro unexpectedly drops 10% to all foreign currencies.
To illustrate the effect of post-devaluation consider the following scenario on AvantiMedia’s economic exposure:
a. Export volume increased by 10% because Italian-Projectors are now cheaper in countries whose currencies have not weakened and sales volume within Italy is not changed.
b. The Euro sales price is raised by 10% and foreign sales price is not changed.
c. Direct costs increased by 10%.
To calculate the net change in present value under this scenario, assume a discount rate of 15% and a Two-year time horizon for any change in cash flow induced by the change in the Euro/dollar exchange rate.
3- ABC Paris Bid:
You have been asked by ABC to help determine a bid for installation of a large Projector production facility in Paris Franc. The bid, which consists of all Costs and Profit had to be specified entirely in term of Euro and is to be submitted on June 20, 2012. The client will announce the awarding decision on July 20 and the Euro payment will be received in 90 days (October 20).
ABC expects the projects to cost $1,000,000 in the U.S., £100,000 British pound for importing material from England and an addition 250,000 Euro in Paris. Actual payments for all costs need only be made on October 20. ABC will charge a 10% Profit Margin Markup on all its costs.
The following information on June 20, 2012 is to be used in answering the following questions.
U.S. 90-120 days borrowing rate = 8%
U.S. 90-120 days deposit rate = 7%
Euro 90-120 days borrowing rate = 6.5%
Euro 90-120 days deposit rate = 5.5%
Pound 90-120 days borrowing rate = 9%
Pound 90-120 days deposit rate = 8.5%
Pound spot quote = £.58/$
Pound 3-4 month Forward quote = $1.50/£
Euro spot quote = €0.82/$
Euro 3-4 month Forward quote = $1.10/€
Options strike price Call Put
3-4 month $1.05/€ $.015/€ $.012/€
3-4 month $1.45/£ $.025/£ $.02/£
Options contracts are over the counter and can be purchase for any size. Assume the transaction costs for options and forward contracts are zero.
Your task is to construct the appropriate hedges and recommend of a Euro amount to place as the bid that would guarantee the required 25% profit margin.
Please answer the following questions:
1. How much of the revenue is exposed?
2. What is the amount of bid using Borrowing and Lending?
3. What is the amount of bid using Forward contract?
For Extra Credit answer the following question:
What is the amount of bid using Options contract?
Present your suggestions clearly and make sure you describe the outcomes under all the contingencies.
At 111papers.com, we value all our customers, and for that, always strive to ensure that we deliver the best top-quality content that we can. All the processes, from writing, formatting, editing, and submission is 100% original and detail-oriented. With us, you are, therefore, always guaranteed quality work by certified and experienced writing professionals. We take pride in the university homework help services that we provide our customers.
As the best homework help service in the world, 111 Papers ensures that all customers are completely satisfied with the finished product before disbursing payment. You are not obligated to pay for the final product if you aren’t 100% satisfied with the paper. We also provide a money-back guarantee if you don’t feel that your paper was written to your satisfaction. This guarantee is totally transparent and follows all the terms and conditions set by the company.Read more
All products that we deliver are guaranteed to be 100% original. We check for unoriginality on all orders delivered by our writers using the most advanced anti-plagiarism programs in the market. We, therefore, guarantee that all products that we submit to you are 100% original. We have a zero-tolerance policy for copied content. Thanks to our strict no plagiarized work rule, you can submit your homework to your professor without worrying.Read more
TThis is one of the most cherished courtesy services that we provide to help ensure that our customers are completely satisfied with our finished products. Delivering the best final product to our customers takes multiple inputs. 111papers.com prides itself on delivering the best university homework help services in the writing industry. And, in part, our free revision policy is how we do it. What’s more, all our revisions are 100% free without any strings attached.Read more
Client privacy is important to use. We know and understand just how important customers value their privacy and always want to safeguard their personal information. Thus, all the information that you share with us will always remain in safe custody. We will never disclose your personal information to any third party or sell your details to anyone. 111 Papers uses the most sophisticated, top-of-the-line security programs to ensure that our customers’ information is safe and secured.Read more
Placing your order with us means that you agree with the homework help service we provide. We, in turn, will endear to ensure that we do everything we can to deliver the most comprehensive finished product as per your requirements. We will also count on your cooperation to help us deliver on this mandate. Yes, we also need you to ensure that you have the highest-quality paper.Read more