Question

Brent Bush, CFO of a medical device manufacturer, BioTron Medical, Inc., was approached by a Japanese customer, Numata, with a proposal to pay cash (in yen) for its typical orders of ¥15,000,000 every other month if it were given a 2.0% discount. Numata's current terms are 30 days with no discounts. Using the following quotes and estimated cost of capital for Numata, Bush will compare the proposal with covering yen payments with forward contracts.
			Spot rate, ¥/$		¥111.40/$
			30-day forward rate, ¥/$		¥115.00/$
			90-day forward rate, ¥/$		¥116.40/$
180-day forward rate, ¥/$		¥117.20/$
Numata's WACC		10.000%
BioTron Medical's WACC		12.000%

How much (in present value terms) will BioTron receive in US$s if Numata is given NO discount and exchange rate risk is managed using the 30-day forward contract? (Hint: Only consider one payment of Yen15,000,000.)

Group of answer choices

$129,143.

Yen129,143.

$130,435

Yen130,435.

Answer 1

The correct answer is $129413

Calculation:

Numanta is given no discount and the terms are 30 days no discount.

so the total payment woud be Yen 15,000,000

now the exchange risk is managed by 30 days forward contract so the exchange rate would be Yen 115/$

So after 30days Biotron Medical Inc would get a payment of $15000000/115= Approx.$130435

Considering the WACC of Biotron 12 pc per annum so considering for 1 month it would be 1pc/month.

Bringing the value to be recieved that Approx $130435 in the PV terms for present value, $130435/1.01= Approx $129143