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.
jeff jeffy answered 1 year agoRelated Solutions
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