Synergy Incorporated, a US based Multinational Company (MNC) manufacturing electrical appliances. The company currently having problem of increasing in labor cost and therefore it affects the company's has profit. The company has decided to reduce the cost. The Board of Directors is considering building a plant in South East Asia, Singapore and Indonesia are countries under consideration. Below are the estimated cash flow and exchange rate for both countries. Singapore Indonesia Forecasted Cash Flow Forecasted Exchange Year Cash Flow (IND) Exchange (SGD) (USD/SGD) (USD/IDR) 2017 (300,000) SGD4.4852 (5,200,000) IDR49.582 2018 65,000 SGD4.0614 1,500,000 IDR49.9648 2019 52,000 SGD4.1323 1,600,000 IDR52.4211 2020 60,000 SGD4.0905 1,800,000 IDR50.6107 2021 75,000 SGD4.4028 2,500,000 IDR51.3034 Based on the information, compute the potential investment's net present value (NPV) for Singapore and Indonesia if the company has weighted cost of capital of 10 and 12 percent. Suggest which location should be choosing by Synergy Incorporated and justify.
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- Which of the following is an example of managing economic exposure by flexible sourcing policy? An American company sells its products in Brazil and Portugal. Reduced sales in Brazil due to the dollar appreciation against the “real” can be compensated by increased sales in Portugal due to the dollar depreciation against the euro. If yen is strong, it is preferable for a Japanese company to open a manufacturing subsidiary in the U.S. to produce and sell its products there. An American IT company hires software developers in Ukraine because of the weak position of grivna against dollar. A Canadian company spends a lot of money for research & development activities to improve its reputation and gain more customers.Assume the New Taiwan dollar (NT$) value is tied to the Canadian dollar (CAD) and willremain tied to the Canadian dollar.Last month, a NT$ = 0.35 Singapore dollars. Today, a NT$ = 0.25 Singapore dollars. Assumethat there is much trade in the computer industry among Singapore, Taiwan, and Canada and thatall products are viewed as substitutes for each other and are of about the same quality. Assumethat the firms invoice their products in their local currency and do not change their prices.a. Will the computer exports from the Canada to Taiwan increase, decrease, or remain the same?Briefly explain. (2%)b. Will the computer exports from Singapore to the Canada increase, decrease, or remain thesame? Briefly explain.Suppose that Kittle Co. is a U.S. based MNC that is considering setting up a subsidiary in Singapore. Kittle would like this subsidiary to produce and sell guitars locally in Singapore, and needs assistance with capital budgeting. The duration of this project is four years, with a salvage value of $12,000,000. This salvage value would be paid by the government in Singapore to Kittle in exchange for ownership of the subsidiary. The expected exchange rate of the Singapore dollar of $0.50 over the life of the project. Kittle managers are worried about the uncertainty of the value of the Singapore dollar. While they expect that the exchange rate will be $0.50, they recognize that this value may fluctuate. Thus, they decide to S$3,000,000 in cash flows per year, while any additional cash flows beyond this threshold would not be hedged. The forward rate that Kittle will use to hedge the S$3,000,000 is $0.48. The following table shows a key subsection of Kittle's capital budgeting analysis…
- Suppose that Kittle Co. is a U.S. based MNC that is considering setting up a subsidiary in Singapore. Kittle would like this subsidiary to produce and sell guitars locally in Singapore, and needs assistance with capital budgeting. The duration of this project is four years, with a salvage value of $12,000,000. This salvage value would be paid by the government in Singapore to Kittle in exchange for ownership of the subsidiary. The expected exchange rate of the Singapore dollar of $0.50 over the life of the project. Kittle managers are worried about the uncertainty of the value of the Singapore dollar. While they expect that the exchange rate will be $0.50, they recognize that this value may fluctuate. Thus, they decide to S$3,000,000 in cash flows per year, while any additional cash flows beyond this threshold would not be hedged. The forward rate that Kittle will use to hedge the S$3,000,000 is $0.48. The following table shows a key subsection of Kittle's capital budgeting analysis…Given the following information, are there geographic arbitrage opportunities available? If so, what level of additional transaction costs in each market will eliminate this opportunity? (All quotes are at time 0). Quotes for the US dollar in South Korea: 1361-1385 Quotes for the South Korean Won in the US: 0.000741 - 0.000762.Assume your firm has transferred you to Zurich Switzerland. You work in the triangular arbitrage division. View the following exchange rates. Is an arbitrage opportunity available? If not, explain why an opportunity does not exist. If so, from the Swiss point of view show how to exploit the opportunity. CHF .8976 = $1.00, $.0130 = INR 1.00, INR 92.7904 = CHF 1 Now say instead of working in Zurich, you were employed in Mumbai, India. How does that change your thinking on the arbitrage? PLEASE ANWSER CORRECTLY AND SHOW WORK
- 1.) Assume your U.S. firm currently has a profit center in Malaysia, receiving a significant number of Malaysian Ringgit (MYR) every year. This is the only direct exchange rate exposure you currently have You want to borrow money to operations in Malaysia and would like to do it in a way that will help minimize your exchange rate risk (transaction risk). Which currency should you borrow: USD; MYR; JPY (Japanese Yen)? Explain how that helps minimize your transaction risk.AU.S. firm is interested in acquiring a Malaysian company in the electronics industry. Suppose the U.S. and Malaysiall markets are segmented. Let MS stand for the Malaysian currency, Ringgit. Information relevant to the cost-of-capital calculations are as follows: U.S. Market ($) Malaysian Market (M$) B 0.70 1.02 гM 14.5% 16% rf 7.5% 8.3% Assume Uncovered Interest Parity (UIP) holds. What is the cost of capital in US$ to Malaysian investors? O 15.4% O 12.4% 16.2% O 13.2%Sing Tao wants to import goods for 2.54 million Australian dollar (A$) and pay to Australian exporter, WA Co., in one year. Sing Tao also wants to minimise its exchange rate risk for the payment of A$2.54 million by taking the forward market hedging strategy. Calculate the Chinese yuan (CNY) costs using the forward market hedging strategy based on the information in Table 1. (Enter the whole number without sign and symbol).
- You are the manager of a U.S. company situated in Los Angeles and manages the import/export division of the company. The company distributes (resells) a variety of consumer products imported to the U.S.A from Europe and also exports goods manufactured in the U.S.A. to Canada. Therefore, your company is very much dependent an the impact of current and future exchange rates on the performance of the company. Scenario 1: You have to estimate the expected exchange rates between your home currency and the other currencies of the major other countries that you deal with in terms of bath imports and exparts. The reason is that increases in the values of other currencies compared to the U.S. Dollar may impact your imports negatively, whilst it may on the other hand, be good for exports. To do this estimate, you obtain the following spot exchange rate information: €/S CADS/S 0.87616 1.30779 You also obtain the following annual risk free rates applying in the countries: U.S.A. 2.660% France…Sing Tao wants to import goods for 2.12 million Australian dollar (A$) and pay to Australian exporter, WA Co., in one year. Sing Tao also wants to minimise its exchange rate risk for the payment of A$2.12 million by taking the money market hedging strategy. Calculate the Chinese yuan (CNY) costs using the money market hedging strategy based on the information in Table 1. (Enter the whole number without sign and symbol). TABLE 1 For Chinese yuan (CNY) Spot rate A$0.3213/CNY One-year forward rate A$0.2381/CNY One-year CNY deposit and borrowing rate 3.21% One-year call options Exercise price = A$0.31 Premium = A$0.02 One-year put options Exercise price = A$0.53 Premium = A$0.03 For Australian dollar (A$) Spot rate CNY3.4201/A$ One-year forward rate CNY1.213/A$ One-year A$ deposit and borrowing rate 2.31% One-year call options Exercise price = CNY2.34 Premium = CNY0.12…Helene Yes! In fact we have that available. Calculate company profit using the alternate exchange rate What is the company profit in U.S. dollars using the alternative foreign exchange rate? Materials on the right have been updated >> Enter a response then click Submit below Submit Scenarios Base Case Alt FX In Euros EUR USD Exchange Rate In US Dollars Sales Revenue COGS Net Income Revenue Net Income Per Unit 1.47 0.49 1.00 1.31 Total 200,000 units 294,000 98,000 196,000 Whiteboard