Question

In: Finance

The Copper Mountain​ Group, a private equity firm headquartered in​ Boulder, Colorado, borrows ​£4,500,000 for one...

The Copper Mountain​ Group, a private equity firm headquartered in​ Boulder, Colorado, borrows ​£4,500,000 for one year at 7.875​% interest.

a. What is the dollar cost of this debt if the pound depreciates from ​$2.0270​/£ to ​$1.9450​/£ over the​ year?

b. What is the dollar cost of this debt if the pound appreciates from ​$2.0270​/£ to ​$2.1630​/£ over the​ year?

Solutions

Expert Solution

a

Particulars Amount
Loan amount         4,500,000
× exchange rate              2.0270
Dollar loan amount         9,121,500
Repayment:
Loan amount         4,500,000
Add: interest            354,375
Repayment in EURO         4,854,375
× exchange rate                1.945
Dollar repayment (b) 9,441,759.38
Dollar cost of debt (b - a)      320,259.38

b

Particulars Amount
Loan amount           4,500,000
× exchange rate                2.0270
Dollar loan amount           9,121,500
Repayment:
Loan amount           4,500,000
Add: interest              354,375
Repayment in EURO           4,854,375
× exchange rate                  2.163
Dollar repayment (b) 10,500,013.13
Dollar cost of debt (b - a)     1,378,513.13

please rate.


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