SAP (a German company) bought Qualtrics for $8 billion in 2018. The deal was to close in 12 months. The current exchange rate between USD and Euro was $1.185 at the time of the deal. The exchange rate forecast was for Euro to depreciate against the USD, but the exact decline is not known. SAP decided to hedge with derivatives and purchased enough options for USD. The call option with strike price of $1.18 per Euro is selling for the price of $0.005 USD. The put option with strike price of $1.18 is selling for $0.01. Which option should SAP use? What is the profit/loss from the hedge if the exchange rate turns out to be $1.165 in 12 months? What about if the rate is $1.19?

Boeing just signed a contract to sell a Boeing 737 aircraft to Air France and will receive €200 million in six months. The current spot exchange rate is $1.2400/€ and the six-month forward rate is $1.26000/€. Boeing can buy a six-month put option on the Euro with an exercise price of $1.2500/€ for a premium of $0.030/€. Currently, the six-month interest rate is 2.40% per annum in the United States. Boeing believes that the Euro would likely appreciate from its current level, but would still like to hedge its foreign exchange exposure.

1. Explain how Boeing should do a forward hedge. Compute the guaranteed dollar proceeds from the Air France sales if Boeing decides to hedge using a forward contract.

2. If Boeing decides to hedge using put options on the Euro, what would be the “expected” net dollar proceeds from the Air France sale? Assume that Boeing regards the current forward exchange rate as an unbiased predictor of the future spot exchange rate.

3. At what future spot exchange rate do you think Boeing will be indifferent between the option hedge and forward hedge?

4. Illustrate your answers with the appropriate post-hedging net $ proceed charts, labeling your foreign exchange rates and net proceeds properly.

Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $3 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 6%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.

Why is this AFN different from the one when the company pays dividends?

A. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of assets needed.

B. Under this scenario the company would have a higher level of spontaneous liabilities, which would reduce the amount of additional funds needed.

C. Under this scenario the company would have a lower level of retained earnings, which would increase the amount of additional funds needed.

D. Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed.

E. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed.

Ski and Board are two identical firms of identical size operating in identical markets. Ski is unlevered with assets valued at $14000 and has 700 shares of stock outstanding. Board also has $14000 in assets and has $7000 in debt financed at an interest rate of 9.50% and has 350 shares of stock outstanding. Assume perfect capital markets.

Calculate the level of EBIT that would make earnings per share the same for Ski and Board.

$

Place your answer to the nearest dollar. If applicable, your answer should NOT include a comma

Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $6 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 7%, and the forecasted retention ratio is 25%. Use the AFN equation to forecast Carlsbad's additional funds needed for the coming year. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. Now assume the company's assets totaled $4 million at the end of 2016. Is the company's "capital intensity" the same or different comparing to initial situation?

Q2. Company B earned $20 million before interest and taxes on revenues of $60 million last year. Investment in fixed capital was $12 million, and depreciation was $8 million. Working capital investment was $3 million. The company expects earnings before interest and taxes (EBIT), investment in fixed and working capital, depreciation, and sales to grow at 12% per year for the next five years. After five years, the growth in sales, EBIT, and working capital investment will decline to a stable 4% per year, and investments in fixed capital and depreciation will offset each other. The company’s tax rate is 20%. Suppose that the weighted average cost of capital is 12% during the high growth stage and 8% during the stable stage. The calculation of FCFF in year 1 through year 5 is shown in the following table:

Finish the table and use WACC model to calculate the value of the company.(please show the details)(50 points)

An oil-drilling company must choose between two mutually exclusive extraction projects, and each costs $11.8 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $14.16 million. Under Plan B, cash flows would be $2.0967 million per year for 20 years. The firm's WACC is 12%.

1. Construct NPV profiles for Plans A and B. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. If an amount is zero enter "0". Negative value should be indicated by a minus sign.

   Discount Rate	NPV Plan A	NPV Plan B
   0%	$ million	$ million
   5	million	million
   10	million	million
   12	million	million
   15	million	million
   17	million	million
   20	million	million

   Identify each project's IRR. Round your answers to two decimal places. Do not round your intermediate calculations.

   Project A %

   Project B %

   Find the crossover rate. Round your answer to two decimal places. Do not round your intermediate calculations.
   %

Question 13 of 25

Subrogation implies that...

A. the insurer acquires the right to take action against the third party.

B. the insured's rights are placed in the insurer's position.

Question 14 of 25

The proximate cause can be described as...

A. events legally caused what result is an extremely difficult legal problem to prove.

B. the active, efficient cause that sets in motion a train of events that brings about the result, the intervention of any force started and working actively from a new and independent source.

C. the active, efficient cause that sets in motion a train of events that brings about the result, without the intervention of any force started and working actively from a new and independent source.

Question 15 of 25

A competent insurer will not insure a risk that they do not understand, or are insurable. The most correct elements of insurable risk are...

A. homogeneous, measurable, accidental, inevitable.

B. homogeneous, measurable, accidental.

C. fortuitous, avoidable, measurable, definitive

Question 16 of 25

Factors limiting the insurability of risk is...

A. premium loadings, moral hazard and adverse selection.

B. underwriting risk, moral hazard and adverse selection

Question 20 of 25

The most correct purpose of the proposal form is to...

A. elicit information, elicit a quotation and establish a warranty.

B. elicit information, describe the cover available.

Question 21 of 25

The most correct interpretation of the operative or insuring clause of an insurance policy is that it refers to...

A. payment of premium, indemnify/compensate, payment/replacement/reinstatement, defined events, period of insurance, exclusions, conditions, limits per schedule

B. payment of premium, indemnify/compensate, payment/replacement/reinstatement

C. payment/replacement/reinstatement, defined events, period of insurance, exclusions

Question 22 of 25

A company has a building valued at R15 000 000. The building is insured for R10 000 000 by ACME Insurers and R5 000 000 by BCME Insurers. There was a fire incident at the building with total damage of R6 000 000.

How much will BCME pay of the damage?

A. R2 000 000

B. R5 000 000

C. R4 000 000

Consider the following table:

a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.)

b. Calculate the value of the covariance between the stock and bond funds. (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Covariance            

Options - are contracts that give the holder the right, not obligation to buy or sell the underlining asset at a specific price and time.These can be used as hedging strategies and speculation. How and why are options used to protect holdings of corporations? Also for Investors? Provide an example along with an advantage and disadvantage along with your opinion on them.