Question 1

The Daily Planet has a wholly owned foreign subsidiary in Brazil.The subsidiary earns 30 million reals per year before taxes in Brazil.The foreign income tax rate is 30%.The subsidiary repatriates the entire after-tax profits in the form of dividends to the Daily Planet.The U.S.corporate tax rate is 40% of foreign earnings before taxes.
a)Compute after-tax cash flow to the Daily Planet from this investment (in reals).Use the table below.

$\begin{array}{llcc}
  \text {Before-tax earnings (in reals)  } &\underline{\quad\quad\quad}  \
 \text {Foreign income tax at $30 \%$  } &\underline{\quad\quad\quad}\
 \text { Earnings after foreign income taxes } &\underline{\quad\quad\quad}\
 \text { Dividends repatriated } &\underline{\quad\quad\quad}\
 \text { Gross U.S. taxes at $40 \%$ of foreign earnings before taxes } &\underline{\quad\quad\quad}\
 \text {Foreign tax credit  } &\underline{\quad\quad\quad}\
 \text { Net U.S. taxes payable } &\underline{\quad\quad\quad}\
 \text { After-tax cash flow } &\underline{\quad\quad\quad}\ 
\end{array}$

b)If the exchange rate is .56 ($/reals),what is the after-tax cash flow in dollars? 
c)Depreciation related cash flow is 2 million reals per year for five years for another Daily Planet investment in Brazil.The exchange rate is expected to be .59 ($/reals).The Daily Planet applies a 15% discount rate to foreign cash flows.What is the present value (in dollars)of the depreciation related cash flow?

Accepted Answer

The answer of The Daily Planet has a wholly owned...

Question 2

Assume the following spot and forward rates for the New Zealand dollar ($/NZD).
$\begin{array} { l l } 
\text { Spot rate } & \$ .6921 \
\text { 30-day forward rate } & \$ .6952 \
\text { 90-day forward rate } & \$ .6988 \
\text { 120-day forward rate } & \$ .7012
\end{array}$ 
a)What is the U.S.dollar value of one New Zealand dollar in the spot market? 
b)Suppose you issued a 90-day forward contract to exchange 100,000 New Zealand dollars into U.S.dollars.How many U.S.dollars are involved? 
c)How many New Zealand dollars can you get for one U.S.dollar in the spot market? 
d)What is the 120-day forward premium?

Accepted Answer

The answer of Assume the following spot and forward rates...

Question 3

Assume the following spot and forward rates for the euro ($/Euro).
$\begin{array} { l r } 
\text { Spot rate } & \$ 1.6277 \
30 \text {-day forward rate } & 1.6330 \
90 \text {-day forward rate } & 1.6353 \
120 \text {-day forward rate } & 1.6387
\end{array}$ 
A)What is the dollar value of one euro in the spot market? 
B)Suppose you issued a 90-day forward contract to exchange 100,000 euros into Canadian dollars.How many dollars are involved? 
C)How many euros can you get for one dollar in the spot market? 
D)What is the 120-day forward premium?

Accepted Answer

The answer of Assume the following spot and forward rates...

Question 4

Assume the following spot and forward rates for the euro ($/euro).
$\begin{array} { l r } 
\text { Spot rate } & \$ 1.6277 \
30 \text {-day forward rate } & 1.6330 \
90 \text {-day forward rate } & 1.6353 \
120 \text {-day forward rate } & 1.6387
\end{array}$ 
A)What is the dollar value of one euro in the spot market? 
B)Suppose you issued a 120-day forward contract to exchange 200,000 euros into Canadian dollars.How many dollars are involved? 
C)How many euros can you get for one dollar in the spot market? 
D)What is the 120-day forward premium?

Accepted Answer

The answer of Assume the following spot and forward rates...

Question 5

Suppose a Swedish krona sells for $0.1309 and a British pound sells for $1.5119.What is the exchange rate (cross rate)of the Swedish krona to the British pound? That is,how many Swedish kronas are equal to a British pound?

Accepted Answer

The answer of Suppose a Swedish krona sells for $0.1309...

Question 6

List and discuss in detail the main factors that influence exchange rates.

Accepted Answer

The answer of List and discuss in detail the main...

Question 7

List and discuss the 3 risks of international financial management.

Accepted Answer

The answer of List and discuss the 3 risks of...

Question 8

Suppose a Swedish krona sells for $0.1625 and a British pound sells for $1.6523.What is the exchange rate (cross rate)of the Swedish krona to the British pound? That is,how many Swedish kronas are equal to a British pound?

Accepted Answer

The answer of Suppose a Swedish krona sells for $0.1625...

Question 9

The Daily Planet has a wholly owned foreign subsidiary in Malaysia.The subsidiary earns 25 million ringgits per year before taxes in Malaysia.The foreign income tax rate is 30%.The subsidiary repatriates the entire aftertax profits in the form of dividends to the Daily Planet.The Canadian corporate tax rate is 40% of foreign earnings before taxes.
A)Compute aftertax cash flow to the Daily Planet from this investment (in ringgits).
$\begin{array}{llcc}
  \text {Before tax earnings (in ringgits)  } &\underline{\quad\quad\quad}  \
 \text { Foreign income tax at $30 \%$ } &\underline{\quad\quad\quad} \
 \text { Earnings after foreign income taxes } &\underline{\quad\quad\quad} \
 \text {  Dividends repatriated} &\underline{\quad\quad\quad}\
 \text {Gross Canadian taxes at $40 \%$ of foreign  } &\
 \text { earnings before taxes  } &\underline{\quad\quad\quad}\
 \text { Foreign tax credit } &\underline{\quad\quad\quad}\
 \text {Net Canadian taxes payable  } &\underline{\quad\quad\quad}\
 \text {Aftertax cash flow  } &\underline{\quad\quad\quad}
\end{array}$

B)If the exchange rate is .40 ($/ringgits),what is the after tax cash flow in dollars? 
C)CCA related cash flow is 3 million ringgits per year for five years for another Daily Planet investment in Malaysia.The cash flow will earn 10% per year.After five years,it will then be translated back to dollars at an exchange rate of .47 ($/ringgit).The Daily Planet applies a 15% discount rate to foreign cash flows.What is the present value (in dollars)of the CCA related cash flow?

Accepted Answer

The answer of The Daily Planet has a wholly owned...

Quiz 21: International Financial Management

Suppose a Swedish krona sells for $0.1309 and a British pound sells for $1.5119.What is the exchange rate (cross rate)of the Swedish krona to the British pound? That is,how many Swedish kronas are equal to a British pound?

List and discuss in detail the main factors that influence exchange rates.

List and discuss the 3 risks of international financial management.

Suppose a Swedish krona sells for $0.1625 and a British pound sells for $1.6523.What is the exchange rate (cross rate)of the Swedish krona to the British pound? That is,how many Swedish kronas are equal to a British pound?