**FIN 516 DeVry Week 7 Homework Chapter Problems**

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**FIN 516 DeVry Week 7 Homework Chapter Problems**

**FIN516**

**FIN 516 DeVry Week 7 Homework Chapter Problems**

**FIN 516 DeVry Week 7 Homework Chapter Problems**

__Problem 31-1 on Exchange Rates Based on Chapter 31 International Corporate Finance__

You are a U.S. investor who is trying to calculate the present value of a €5 million cash inflow that will occur 1 year in the future. The spot exchange rate is S = $1.25/€ and the forward rate is F1 = $1.215/€. You estimate that the appropriate dollar discount rate for this cash flow is 4% and the appropriate euro discount rate is 7%.

- a) What is the present value of the €5 million cash inflow computed by first discounting the euro and then converting it into dollars?
- b) What is the present value of the €5 million cash inflow computed by first converting the cash flow into dollars and then discounting?
- c) What can you conclude about whether these markets are internationally integrated, based on your answers to parts a) and b)?

__Problem 31-2 on Currency Appreciation Based on Chapter 31 International Corporate Finance__

Mia Caruso Enterprises, a U.S. manufacturer of children’s toys, has made a sale in Cyprus and is expecting a C£4 million cash inflow in 1 year. The current spot rate is S = $1.80/C£ and the 1-year forward rate is F1 = $1.8857/C£.

- a) What is the present value of Mia Caruso’s C£4 million inflow computed by first discounting the cash flow at the appropriate Cypriot pound discount rate of 5%, and then converting the result into dollars?
- b) What is the present value of Mia Caruso’s C£4 million inflow computed by first converting the cash flow into dollars, and then discounting at the appropriate dollar discount rate of 10%?
- c) What can you conclude about whether these markets are internationally integrated, based on your answers to parts a) and b)?

__Problem 31-7 on Eurobonds Versus Domestic Bonds Based on Chapter 31 International Corporate Finance__

The dollar cost of debt for Coval Consulting, a U.S. research firm, is 7.5%. The firm faces a tax rate of 30% on all income, no matter where it is earned. Managers in the firm need to know its yen cost of debt because they are considering launching a new bond issue in Tokyo to raise money for a new investment there.

The risk-free interest rates on dollars and yen are r$ = 5% and r¥ = 1%, respectively. Coval Consulting is willing to assume that capital markets are internationally integrated and that its free cash flows are uncorrelated with the yen-dollar spot rate.

What is Coval Consulting’s after-tax cost of debt in yen? (Hint: Start by finding the after-tax cost of debt in dollars and then find the yen equivalent.)

__Problem 31-12 on Credit and Exchange Rate Risk Based on Chapter 31 International Corporate Finance__

Suppose the interest on Russian government bonds is 7.5%, and the current exchange rate is 28 rubles per dollar. If the forward exchange rate is 28.5 rubles per dollar, and the current U.S. risk-free interest rate is 4.5%, what is the implied credit spread for Russian government bonds?

__Problem 30-9 on Forward Market Hedge Based on Chapter 30 Risk Management__

You are a broker for frozen seafood products for Choyce Products. You just signed a deal with a Belgian distributor. Under the terms of the contract, in 1 year, you will deliver 4000 kg of frozen king crab for 100,000 euros. Your cost for obtaining the king crab is $110,000. All cash flows occur in exactly 1 year.