Business Finance Homework Help

For the questions below please show the working, and do provide brief explanation as to how you came up with answer and what is going on? they look detailed to provide you all the information

3. Forty Acre Inc. (FA), a U.S.-based multi-national company, has screened several acquisition targets in Malaysia. FA has identified a Malaysian company, KL Rubber, which would provide a good strategic fit for FA. The tax rate on the firm’s earnings is expected to be 35%. The exchange rate is currently $.2554/MYR. Inflation is expected to average 7.5% in Malaysia and 2.0% in the U.S. The risk-free rate in the U.S. is 3.25%. Assume a 6.0% market risk premium. FA has estimated the beta this investment is 1.1. For this project, FA plans to borrow MYR 250 million on a revolving loan at 9.5% interest. The investment will require another MYR 200 million in equity capital. What is the appropriate discount rate that KL Rubber should use to evaluate this investment?

4. Bay Area Manufacturing Co. is a San Francisco based firm that has operations in the United States and is considering an investment in Changsha, China. Hunan Renmin Bank has agreed to a RMB 16,000,000 loan at a rate of 8.35%. The rest of the financing for the factory will come in the form of an equity investment from the firm (RMB 24,000,000). The total investment is RMB 40,000,000. The CFO for Bay Area has determined that DanHan Manufacturing Co., headquartered in Nanchang, China is a good proxy company to help determine the cost of capital for Bay Area’s investment in China. The CFO has made the following market estimations. Variance of DanHan’s stock = 0.810 Standard deviation of the DanHan’s stock = 0.900 Variance of the Chinese stock market = 0.423 Standard deviation of the Chinese stock market = 0.650 Variance of the US stock market = 0.160 Standard deviation of the US stock market = 0.400 Correlation of DanHan and the Chinese stock market = 0.82 Correlation of DanHan and the US stock market = 0.45 Estimated Market risk premium on the US stock market = .055 Estimated Market risk premium on the Chinese stock market = .090 Rate on government securities (T-bills) in the US = .0375 Rate on government securities in China = .0695 The spot rate is USD 0.1639 = RMB1. The tax rate for Bay Area is 39%. Inflation is expected to be 6.5% in China and 3.2% in the United States. What is the appropriate discount rate for the project?

5. Lucy’s is a US based restaurant chain that is expanding to Malaysia. Lucy’s can either borrow from a Malaysian bank at 9.55% (in MYR) or from a US bank at 5.50%. The spot rate is USD 0.3560 = MYR 1. The one-year forward rate is USD 0.3425 = MYR 1. If Lucy’s wants the lowest cost (interest rate in USD terms) loan for their US based shareholders, which loan should Lucy’s take?

6. Eight-Mile Electric Motor Co. (EMEM) manufactures electric motors for electric and hybrid cars in their plant in Detroit, Michigan, USA. One of EMEM’s biggest markets is in Europe. EMEM competes with a French producer of electric motors, Citreonic Electric Motor Co. On January 1, 2016, the exchange rate was $1.2250/€. On January 1, 2017 the exchange rate was $1.2150/€. The US experienced a 6.5% inflation rate over that time period. France’s inflation was 3.0%. Assume that EMEM’s manufacturing costs increased at the rate of US inflation. Assume that Citreonic’s costs increased at the rate of French inflation. Did one company gain an advantage over their competitor due to the change in exchange rates? Please show all calculations needed to come to your conclusion.