Week 10 Homework

Chapter 19 #3 Page 588

3. Explain how the Export-Import Bank can encourage U.S. firms to export to less developed countries where there is political risk.

 

Chapter 20 #8 and #13

8. Break-Even Financing Providence Co. needs dollars. Assume that the local 1-year loan rate is 15 percent, while a 1-year loan rate on euros is 7 percent. By how much must the euro appreciate to cause the loan in euros to be more costly than a U.S. dollar loan?

13. Financing During a Crisis Bradenton, Inc., has a foreign subsidiary in Asia that commonly obtains short-term financing from local banks. If Asia suddenly experiences a crisis, explain why Bradenton may not be able to easily obtain funds from the local banks.

 

Chapter 21 #10

10. Illinois Co. (of the United States) and Franco Co. (based in France) are separately considering the acquisition of Podansk Co. (of Poland). Illinois Co. and Franco Co. have similar estimates of cash flows (in the Polish currency, the zloty) to be generated by Podansk in the future. The U.S. long-term risk-free interest rate is presently 8 percent, while the long-term risk-free rate of the euro is presently 3 percent. Illinois Co. and Franco Co. expect that the return of the U.S. stock market will be much better than the return of the French market. Illinois Co. has about the same amount of risk as a typical firm in the United States. Franco Co. has about the same amount of risk as a typical firm in France. The zloty is expected to depreciate against the euro by 1.2 percent per year and against the dollar by 1.4 percent per year. Which firm will likely have a higher valuation of the target Podansk? Explain.

 

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