Interest rates in Mexico are 3% and in the United States they are currently 0.025%. The MXN/USD spot rate is 0.076. You are offered a 12-month forward rate of .08.

A) show whether the forward contract is overvalued or undervalued.

B) which currency should you borrow and why ?

C) what is the percentage return from engaging in Covered Interest Arbitrage ?

what are the socioeconomic impacts of high tariffs on imports and exports for the US economy, and then the consumer? Related to finance.   Please elaborate your answer.

Jackson Corporation stock is selling for $45 per share. An investor is considering buying a call option with an exercise price of $50. The investor is willing to pay the premium of 55 cents per option. Please work in excel and show how you derived the answer.

A. Calculate the exercise value of the option?

B. Why is an investor willing to pay 50 cents an option when the stock is going for $45?

c. Calculate the exercise value if the price of the stock increases to $52 per share.

d.  What is the difference between a put option and a call option?

e.  If the exercise price for both the call option and the put option is $50, which will have a higher premium if the underlying stock price falls to $40 per share?  Why?

A company has the following projected free cash flows:

C₁ = -$50,000,000   C₂ = -$40,000,000      C₃ = -30,000,000      C₄ = ????

(a) If you apply the growing perpetuity model with a growth rate of 6% and a discount rate of 10% beginning in time 4 and in perpetuity thereafter, what number do you need to insert for C₄ to have a market value of equity of 1 billion?

(b) If the company has $500,000,000 in semi-annual bonds outstanding with 7.5% coupon and 12 years to maturity remaining, what is the market value of the bonds if the yield to maturity is 6.25%?

(c) What is the market value of the assets of the company?

(d) If you valued the bonds using continuous compounding with the same yield to maturity, show the calculation and the results of the bond valuation. (Note: the payments on the bond are made in the usual timing and amount).

Tortuga Tarpon Classic

The company has two separate research teams working on the project and they develop two distinctly different fishing combinations. The two rod and reel combinations are test marketed with guides and past tournament champions and demand forecasts are determined. Most fishing gear has a relatively short life due to continual product innovation. Manufacturing of the two combinations is estimated to require an upfront cost of $5 million to retool the machine shop. The process for manufacturing the two combinations differ and ongoing variable costs are not the same. The net cash flows for the entire ten year expected life of the product is shown in Figure 1 as Project A and Project B (all figures are $thousands of net cash flow).

Project A focuses on hand tooled fishing equipment which results in a more labor intensive process, but also allows for personalized features for customers. The price charged for customization offset the slower hand tooling process to generate substantial net cash flows. Part of the upfront $5 million includes the costs of training more machinists in the art of hand tooling, which is similar to watch making but with a few less moving parts. Project A is anticipated to generate lower cash flows in the early years due to the length of time required to get machinists who are adept at hand tooling to customer specifications. In fact, during the first year there will be continued expenses to attain these skills which causes year one net cash flows to be negative. Over time the cash flows increase as more machinists gain proficiency. The project is expected to experience lower cash flows towards the end of its life due to market saturation. Due to the quality of the reels, they are built to last and seldom fail or wear out. Technological obsolescence is certain although Tortuga will be investing cash flows into research and development to launch the next generation at the conclusion of the Tortuga Tarpon Classic life cycle.

Project B employs a mechanized approach to large scale production of standardized equipment. Although the approach does not allow for personalization, it does allow Tortuga to build its inventory quickly and capture positive net cash flows immediately. The upfront expense is almost completely devoted to tooling equipment procurement and the number of units produced will be much higher and at lower price points than the approach of Project A. At the end of both projects life it is assumed that there will be zero salvage value as the pace of innovation will require a complete re-tooling for the next generation and the useful life of the equipment will have been fully realized.

Brooks realizes that he will need to calculate the firm’s cost of capital discount rate and apply this to the cash flow projections of both projects. He recalls all of the assignments he completed at university and is thankful to have been so well-prepared for this task. He gets a cup of coffee, sits down at his desk, and gets to work.

Figure 1 Project Net Cash Flows for Tortuga Fishing Equipment ($thousands)

What are the net present value (NPV), internal rate of return (IRR), and Payback Periods for Projects A & B? Assuming a WACC of 6.54%

ABC Company has the following projected sales:

14% of the sales are collected in the same month. 26% of the sales are collected after one month, 42% of the sales are collected after two months, and the remainder are collected after three month. What is the amount of the April collections?

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12,345.678 then enter as "12345.68" in the answer box.

2. Look at the Apple options from below. Suppose you buy an October expiration call option with exercise price $100.

1. If the stock price in October is $105, will you exercise your call? What are the net profit and the rate of return if you exercise the call?  
2. Will you exercise the call if you had bought the October call with exercise price $95?
3. Will you exercise the option if you had bought an October put with exercise price $100?

13. NPV versus IRR Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation. Both projects require an annual return of 15 percent.

As a financial analyst for the company, you are asked the following questions.

1. If your decision rule is to accept the project with the greater IRR, which project should you choose?
2. Since you are fully aware of the IRR rule’s scale problem, you calculate the incremental IRR for the cash flows. Based on your computation, which project should you choose?
3. To be prudent, you compute the NPV for both projects. Which project should you choose? Is it consistent with the incremental IRR rule?

True or false with justification:

1. Financial Derivatives can be traded in the future markets. They include futures, options and bills.

2. Government bonds are issued by governments to finance the budget deficit, they are short term and less risky than stocks and corporate bonds.

3. The agency problem results from a manager’s concerns about corporate goals and can only be solved through stock options

What advantages would Libra have over existing money transfer services such as that provided by the company Western Union or banks?

What advantages would Libra have over Bitcoin? Use sub-headings for each point.

Healthcare is expensive. It takes an enormous amount of capital to secure the necessary resources to finance the care delivery continuum. The cost and sources of that capital is critical to being able to understand the cost of conducting business in general and also forms the basis on which future projects can be evaluated on a quantitative basis (e.g., capital budgeting, lease financing, etc.).

For this discussion, do the following: Consider you are determining which type of financing to be used for a new project in your hospital. Your hospital is doing financially well and has money that can be used for financing—it also has a top credit rating that could be used for debt financing as well. Review the pros and cons of each financing opportunity. Discuss your selection for financing which would be optimal for your hospital. Why did you choose this option?

PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $105 million on equipment with an assumed life of 5 years and an assumed salvage value of $11 million for tax purposes. The firm uses straight-line depreciation. The old equipment can be sold today for $80 million. A new modem pool can be installed today for $150 million. This will have a 3-year life and will be depreciated to zero using straight-line depreciation. The new equipment will enable the firm to increase sales by $25 million per year and decrease operating costs by $10 million per year. At the end of 0 years, the new equipment will be worthless. Assume the firm’s tax rate is 35% and the discount rate for projects of this sort is 10%. a. What is the net cash flow at time 0 if the old equipment is replaced? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What are the incremental cash flows in years 1, 2, and 3? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) c. What are the NPV and IRR of the replacement project? (Do not round intermediate calculations. Enter the NPV in millions rounded to 2 decimal places. Enter the IRR as a percent rounded to 2 decimal places.)