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Stable $ 1.22 E
Strong $ 1.01 E
Weak $ 1.48 E
? Hedging or no Hedging
Options premium 5% 1525
Weak
4875
4017.1875
4303.125
4589.0625
3731.25
Go for 1st
Weak
3250
2678.125
2868.75
3059.375
2487.5
Go for 1st
Weak
1625
1339.0625
1434.375
1529.6875
1243.75
Go for 1st
No profit
30500 no loss
1525 Premium
In forwards when dollar is weak we are gaining and in options the
loss is less. But company shold go for forwards contract
It is upto a company also if it is conservative then forwards if very
conservative then no hedgeing 1250
1925
No profit
30500 no loss
1525 Premium
1675
1525 Premium
1925
Premium
The company will gain more in options contract but company is conservative
and is comfortable with forwards contract .
Tutorials
WAAC 10.33%
Q6 COE 6.75% A
Q7 US YEN Q8
Company MNC
what will be the capital structure ?
*parent companies capital structure
*own capital structure
Equity *combination of both
Integrated
*ADR
*GDR Are used to raise equity from different countries
*IDR
World
Correlation Coefficients
Telmex Mexico World SD (%) R
Telmex 1 0.9 0.6 18 b
Mexico 1 0.75 15 14
World 1 10 12 1.2
0.0666667
b
Riskfree
1.08 Domestic beta rate
1.08 World Beta mkt risk
CAMP
Beta
Riskfree rate 5%
mkt risk 14%
CAMP 14.72%
Beta 1.08
Integrated 12.56%
8.05%
Mechel Russia World SD(%) (%)
R
1 0.9 0.6 20 ?
1 0.75 15 11
1 10 9
4%
11%
12.40% 10.792
1.2
3
600000
2
arears Currency
Time 0 50 1
Time 1 60 1.25
Local rretu 20
50%
return 50
10share @10
Project
Factors take into consideration while selceting the project
1 Discount rate
2 Exchange rate Subsides
3 Govt Policies
*Repatriattion of profits /Blocked funds
*Withold taxes
*Transfer pricing
4 Fininacing pattern
Exchange rate 7%
50000
Q1 ( 2018 batch)
Exchange rate 7%
Exchange rate 3%
Methods to evaluate capital budgeting
*IRR *MIRR
*NPV *MNPV
*Profitability Index
*Adjusted Prseent Value
Calculate conventional cf
in USD
Q4 Intial cost 60000000
$770.09 unts produced 20000
NPV $78,620,852.61
$3,324.27 Bloacked 2000000
$5,525.39 PV of tax savings in royalty pay
$7,174.96 Savings in prod $20,923,228.84
$8,944.32 APV $101,544,081.45
$10,840.29
$12,800.00
$13,416.43 Q5 Loan 15000000
Int rate 4%
US 6%
Damish krones 5.50%
$1,848.9
Q6
Sales 1400000000
operating cost 600000000
profit befor dep 800000000
Dep 160000000
Profit befor tax 640000000
Tax 55% 224000000
PAT 416000000
Cash flows 576000000
in USD
NPV $574,285,714.29
$1,804.91 Bloacked 2000000
$1,824.31 PV of tax savings in royalty pay
$2,229.98 Savings in prod $747,258,172.87
$2,253.94 APV $1,323,543,887.15
$2,582.96
$6,250.00
$1,826.83
in USD
$1,804.91
$1,824.31
$2,229.98
$2,253.94
$2,582.96
$6,250.00
$1,826.83
PAT-dep equity
+PV of savings Separet rate
Tax saving on
Royalty 8800000 royalty 4840000
1320000
Tax saving on
Royalty 28000000 royalty 9800000
5040000
₹921
12800
0.065 920
19530 ₹1,025.41
18440.61