Mary owns a U.S. based company and wants to open a store in Japan. She will have to exchange her USD for Yen in order to finance the rent and payroll. Which of the following situations would put her at the greatest advantage as far as the exchange rates go?  

Catherine is a U.S. citizen who is employed by DSC, Inc., a global company. Beginning on August 1, 2018, Catherine began working in Augsburg, Germany. She worked for 153 days of 2018. She worked there until March 31, 2019, when she transferred to Kamnik, Slovenia. She worked in Kamnik for the remainder of 2019. Her salary for the first seven months of 2018 was $225,000, and it was earned in the United States. Her salary for the remainder of 2018 was $165,000, and it was earned in Augsburg. Catherine's 2019 salary from DSC was $425,000, with part being earned in Augsburg and part being earned in Kamnik.

Assume the 2019 indexed statutory amount is the same as the 2018 indexed amount. Assume a 365-day year.

When required, round any fractions out to four decimal places. Round final answers to the nearest dollar.

a. Is Catherine eligible for the foreign income exclusion for 2018? Yes

b. Catherine may exclude $ ? from her gross income for 2018.

c. Is Catherine eligible for the foreign income exclusion for 2019? Yes

d. Catherine may exclude $ 103,900 from her gross income for 2019.

You are the manager of a U.S. company situated in Los Angeles and manages the import/export division of the company. The company distributes (resells) a variety of consumer products imported to the U.S.A from France and also exports goods manufactured in the U.S.A. to Britain.

Therefore, your company is very much dependent on the impact of current and future exchange rates on the performance of the company.

Scenario 1:

You have to estimate the expected exchange rates one year from now between your home currency and the other currencies of the major other countries that you deal with in terms of both imports and exports. The reason is that increases in the values of other currencies compared to the U.S. Dollar may impact your imports negatively, whilst it may on the other hand, be good for exports. To do this estimate, you obtain the following spot exchange rate information:

You also obtain the following rates that you regard as similar to the annual risk free rates applying in the countries:

Your focus is presently to estimate the 12 month forward rates in order to consider the impact that it will have on the import and export sales of the company. Calculate the forward rates of the $ in terms of all the currencies by using simple interest rate parity e.g. 10% annual interest rate = 10/2 = 5% for six months. Do not apply effective annual interest rate compounding. Show all your workings in table 1 on the separate answer sheet by using the correct formula provided in your formula sheet.

Provide an indication about what will happen to the value of the US$ based on the forward exchange rate calculations by calculating the expected discount/premium of it for each of the currencies in Table 2 on the separate answer sheet. Also show whether the impact will be positive (P) or negative (N) for imports and exports. For example:

A computer software development company in the U.S. exports its software to the euro zone. The company’s European distributor asks and the company agrees to receive payments in euros (€). The distributor has just ordered a shipment that is priced in euros at today’s dollar equivalent of $28,150,000 for delivery and settlement in three months. The U.S.-based company is particularly worried about a high degree of uncertainty surrounding the euro exchange rate against the dollar. It decides to consider whether to hedge. Consulting with a NY bank, the company is advised that there are four different ways it can accomplish the hedge: Through a forward contract, a futures contract, an option contract, and through a money market hedge. The following information is available:

Spot                                         $1.1260/€

3-month forward                       $1.1220/€

6-month forward                       $1.1360/€

3-month futures                        $1.1215/€

90-day call option #1                 $ 1.1280/€ strike; $ 0.0030/€ premium

90-day put option #1                 $ 1.1280/€ strike; $ 0.0050/€ premium

180-day call option #2               $ 1.1290/€ strike; $ 0.00820/€ premium

180-day put option #2                $ 1.1290/€ strike; $ 0.00980/€ premium

90-day dollar interest rate          4.40% per annum (deposit)        6.40% per annum (loan)

90-day euro interest rate            3.60% per annum (deposit)        5.60% per annum (loan)

1. Specify which hedging instruments (from the above list) you should look into.

The long-term liabilities section of CPS Transportation’s December 31, 2020, balance sheet included the following: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

a. A lease liability with 15 remaining lease payments of $38,000 each, due annually on January 1:

The incremental borrowing rate at the inception of the lease was 11% and the lessor’s implicit rate, which was known by CPS Transportation, was 10%.

b. A deferred income tax liability due to a single temporary difference. The only difference between CPS Transportation’s taxable income and pretax accounting income is depreciation on a machine acquired on January 1, 2020, for $560,000. The machine’s estimated useful life is five years, with no salvage value. Depreciation is computed using the straight-line method for financial reporting purposes and the MACRS method for tax purposes. Depreciation expense for tax and financial reporting purposes for 2021 through 2024 is as follows:

The enacted federal income tax rates are 20% for 2020 and 25% for 2021 through 2024. CPS had a deferred tax liability of $9,500 as of December 31, 2020. For the year ended December 31, 2021, CPS’s income before income taxes was $960,000.

On July 1, 2021, CPS Transportation issued $660,000 of 9% bonds. The bonds mature in 15 years, and interest is payable each January 1 and July 1. The bonds were issued at a price to yield the investors 10%. CPS records interest at the effective interest rate.

Required:
1. Determine CPS Transportation’s income tax expense and net income for the year ended December 31, 2021.
2. Determine CPS Transportation’s interest expense for the year ended December 31, 2021.
3. Prepare the long-term liabilities section of CPS Transportation's December 31, 2021, balance sheet.

BDI is looking to acquire a distressed pitchfork company. BDI is able to pay cash to fund the acquisition. The company president has asked you to evaluate the potential acquisition, and ultimately make a recommendation about wheather BDI should purchase the pitchfork company and if so, for what price. From your analysis and evaluation of the pitchfork company's financial statements, you put together the following table of sales forecasts (numbers in millions):

Pre-Merger Beta: 1.75

Pre-Merger % Debt: 35%

Pre-Merger Debt: $27.5 million

Pre-Merger Debt Rd: 9.5%

Tax Rate: 35%

You also gathered the following market information:

Risk Free Rate 2.4%

Market Risk Premium 5.0%

Your study of the pitchfork market shows that with the merger and introduction of a new cardinal red and navy blue pitchfork sales will grow stongly for the next 2 years, but that overall the market is mature, and expected to grow at only a 2% constant rate after 2020. BDI would need to invest $500,000 in operating captial in 2019 to build the required inventory to start sales.

Deliverables:

1.) Complete an APV valuation analysis for the examined pitchfork company. 2.) Assume that the examined pitchfork company has 1.5 million shares outstanding. What is the maximum price BDI should pay per share? Would you recommend they offer this price (Pitchfork company stock price is $18.75 a share)? Why or why not? 3.) Given BDI's strong balance sheet, they could likely recapitalize the pitchfork company with 70% debt at the end of 2 years (this amounts to $75.5 million of debt at the end of 2020 at the same interest rate). What is the value of the pitchfork company's equity with this capital structure?

.

Identify whether the following create substantial transaction, operating, and/or translationexposure (or no exposure at all) for a U.S. company, and how the company will be affected if theforeign currency depreciates. The examples will typically create more than one type of exposure.

D) Widgets International (WI) purchases a British factory, financed by issuing dollar debt and swapping for pound-denominated debt. WI is expecting a steady stream of pound revenues from the factory. FASB 8 is in effect.

The first half of 2020 has been very challenging for the Australian banking sector with major bush fires, then several severe storms (e.g. Canberra hailstorm) and now the COVID-19 outbreak and shutdown of the Australian economy. We have discussed, how the impact these events—particularly COVID-19—has had on the banks as well as how the banks and regulators have responded to the challenges.
You are the team leader of the Strategy and Operations team at the Commonwealth Bank of Australia. The CEO and Board has asked you to write a series of three short memos outlining the impact that COVID-19 has had on the bank and your recommendations for operations in the next 6 to 12 months. Each of the memos will focus on one fundamental risk and should be written independent of the other memos so that each memo is self-contained (e.g. when reading memo 1, you do NOT need to read the memos 2 and 4 to understand memo 1).

Question 1
Write a memo outlining the impact that COVID-19 has had on interest rate risk for the bank. Suggest some strategies the bank can use to manage this risk in the next 6-12 months.

The first half of 2020 has been very challenging for the Australian banking sector with major bush fires, then several severe storms (e.g. Canberra hailstorm) and now the COVID-19 outbreak and shutdown of the Australian economy. We have discussed, how the impact these events—particularly COVID-19—has had on the banks as well as how the banks and regulators have responded to the challenges.

You are the team leader of the Strategy and Operations team at the Commonwealth Bank of Australia. The CEO and Board have asked you to write a series of three short memos outlining the impact that COVID-19 has had on the bank and your recommendations for operations in the next 6 to 12 months. Each of the memos will focus on one fundamental risk and should be written independently of the other memos so that each memo is self-contained (e.g. when reading memo 1, you do NOT need to read the memos 2 and 4 to understand memo 1).

Question
Write a memo outlining the impact that COVID-19 has had on credit risk for the bank. Suggest some strategies the bank can use to manage this risk in the next 6-12 months. (Full Details)

The first half of 2020 has been very challenging for the Australian banking sector with major bush fires, then several severe storms (e.g. Canberra hailstorm) and now the COVID-19 outbreak and shutdown of the Australian economy. We have discussed, how the impact these events—particularly COVID-19—has had on the banks as well as how the banks and regulators have responded to the challenges.
You are the team leader of the Strategy and Operations team at the Commonwealth Bank of Australia. The CEO and Board has asked you to write a series of three short memos outlining the impact that COVID-19 has had on the bank and your recommendations for operations in the next 6 to 12 months. Each of the memos will focus on one fundamental risk and should be written independent of the other memos so that each memo is self-contained (e.g. when reading memo 1, you do NOT need to read the memos 2 and 4 to understand memo 1).

Question 3
Write a memo outlining the impact that COVID-19 has had on liquidity risk for the CBA. Suggest some strategies the bank can use to manage this risk in the next 6-12 months.