QUESTION 3 - FINANCING OPTIONS
THE US COMPANY HAS VARIOUS OPTIONS TO FINANCE THIS ACQUISITION FOR ITS EXACT USD AMOUNT
OPTION 1: A LOAN AT 7%, MATURITY 4 YEARS, WITH FIXED ANNUITIES. CALCULATE THE ANNUITY
CAPITAL
INTEREST RATE
MATURITY
ANNUITY
7%
2,610
13 pts
OPTION 2: A LOAN AT 8% YEARLY INTEREST RATE, REIMBURSABLE AT MATURITY (4 YEARS)
CAPITAL
INTEREST RATE
8%
MATURITY
4
PLEASE DETERMINE PAYMENTS CASHFLOWS
Y1 Y2 Y3 Y4
12 pts
OPTION 3: A LOAN AT 8% YEARLY INTEREST RATE, FULLY PAYABLE (INTEREST & CAPITAL) AT MATURITY (4 YEARS)
CAPITAL
INTEREST RATE
8%
MATURITY
4
PLEASE DETERMINE PAYMENTS CASHFLOWS
Y1 Y2 Y3 Y4
12 pts
WHICH ONE OF THESE OPTIONS AND RESPECTIVE YEARLY LOAN PAYMENTS, COULD BE COVERED BY THE CASHFLOWS GENERATED BY THE GERMAN COMPANY ITSELF YEAR AFTER YEAR?
WHICH OPTION? PLEASE EXPLAIN IN A FEW WORDS WHY EACH OPTION WOULD WORK/NOT WORK
10 pts
HOW WOULD YOU CHANGE YOUR ANSWER TO THE PREVIOUS QUESTION, IF THE SPOT RATE WAS TO BECOME 0.9 IN Y1 AND THEN REMAIN AT THIS LEVEL OVER THE FOLLOWING 3 YEARS?
PLEASE EXPLAIN
10 pts