1. Home Co, a US company making small kitchen appliances, imports plastics from Mexico. Home Co makes an order for next year for plastics, for which it will have to make a payment of MXN150 mn in 1 year. Casa’s finance manager is worried about Mexican Pesos (MXP) because it can be very volatile due to problems in the economy, so he decides to hedge the payable.

He talks to the banks and collects the following information on potential hedging possibilities:

1-year borrowing rate in US$= 3%

1-year deposit rate in US$=1%

1-year borrowing rate in MXN=6%

1-year deposit rate in MXN=4%

Spot rate of MXN= $0.045

1-year forward rate of USMXN=$0.05

Future spot rate of MXN (1-year later)= $0.03 with 70% probability

Future spot rate of MXN (1-year later)=$0.04 with 20% probability

Future spot rate of MXN (1-year later)=$0.05 with 10% probability

Strike price of a 1-year call option = $0.04, premium = $0.005 (per dollar)

Strike price of a 1-year put option = $0.05 , premium= $0.005 (per dollar)

1. By using the relevant information above, calculate the cost of hedging for each of the 3 methods (forward hedge, money market hedge or option hedge) to Casa Co. Which one should the company use, why? (15 points)
2. Would Casa be better off if it did not make the hedge? (5 points)

Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.5119 S$/US$. You have just placed an order for 20,000 motherboards at a cost to you of 231.70 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $164 each.

Calculate your profit if the exchange rates stay the same over the next 90 days. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Profit            $  

Calculate your profit if the exchange rate rises by 8 percent over the next 90 days. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Profit            $

Calculate your profit if the exchange rate falls by 8 percent over the next 90 days. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Profit            $

What is the break-even exchange rate? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)

Break-even exchange rate            S$  /$

What percentage decrease does this represent in terms of the Singapore dollar versus the U.S. dollar? (Enter your answer as a positive value. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Percentage decrease             %

suppose your company imports computer motherboards from singapore. the exchange rate is currently 1.2836S$/US$. you have just placed an order for 24,000 motherboards at a cost to you of 236 singapore dollars each. you will pay for the shipment when it arrives in 90 days. you can sell the motherboards for $195 each. what is your profit at the current exchange rate? what is your profit if the exchange rate goes up by 10 percent over the next 90 days? what is your profit if the exchange rate goes down by 10 percent over the next 90 days? what is the break even exchange rate? what percentage rise or fall does this represent in terms of singapore dollar versus the us dollar?

Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.5138 S$/US$. You have just placed an order for 39,000 motherboards at a cost to you of 231.20 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $164 each. Calculate your profit if the exchange rates stay the same over the next 90 days. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Profit $ 439530 Calculate your profit if the exchange rate rises by 8 percent over the next 90 days. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Profit $ 880620 Calculate your profit if the exchange rate falls by 8 percent over the next 90 days. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Profit $ What is the break-even exchange rate? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Break-even exchange rate S$ /$ What percentage decrease does this represent in terms of the Singapore dollar versus the U.S. dollar? (Enter your answer as a positive value. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage decrease %

4. Describe at least two differences in disclosure provided in the footnotes of the competitors under IFRS and US GAAP. Example: – The Property, Plant and Equipment footnote is much more detailed for Company X in IFRS than for Company Y using US GAAP. For each PP&E component, it reconciles the differences beginning and ending net book values including additions, disposals, currency translation effects, depreciation and impairments. Company Y lists the PP&E components only.

Suppose you are a member of company X's board of directors and chairperson of the company's compensation committee. What factors should your committee consider when setting the CEO's compensation? Should the compensation consists of a dollar salary, stock options that depend on the firm's performance, or a mix of the two? If "performance" is to be considered, how should it be measured? Think of both theoretical and practical (i.e., measurment) considerations. If you were also a vice president of Company X, might your actions be different than if you were the CEO of some other company?

Hansen Computer Corp. acquires $2,150,000 in new 7-year class assets (all tangible personal property) in February 2020. The company elects to take all available Sec. 179 expense and bonus first-year depreciation. Assume Hansen uses a calendar year and that Sec. 179 expense will not be limited by taxable income in 2020. What cost recovery deduction can Hansen take in 2020?