Purchase Solution

Exchange Rate and Capitalization

Not what you're looking for?

Ask Custom Question

Analyze what the implications would be to the firm's capital structure if the company took on debt denominated in some currency other than U.S. dollars. In particular analyze the following:

1.) What risks will the company incur if it increases its long-term debt from US$100 million to US$150 million by taking on 40 million in euro debt based on current exchange rates of 0.80 euros to US$1? (The euro debt will pay a 7% coupon.)

2.) How would changes in exchange rates between the euro and U.S. dollar impact the firm's capital structure and interest payments on the euros?

Assume the company's equity will remain at US$150 million and will not change when the euro debt is issued. I need to chart (graph) how exchange rates will impact the capital structure of the firm and interest payments on the euro-denominated debt.

Use Microsoft Excel to graph the capital structure of the firm in U.S. dollars based on changes in exchange rates. Use two scenarios: U.S. dollar appreciation against the euro and U.S. dollar depreciation against the euro. For capital structure, graph to total capital structure, debt, and equity.

Purchase this Solution
Solution Summary

This Solution contains calculations and brief explanations to aid you in understanding the Solution to these questions.

Purchase this Solution
Free BrainMass Quizzes
Motivation

This tests some key elements of major motivation theories.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Introduction to Finance

This quiz test introductory finance topics.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Operations Management

This quiz tests a student's knowledge about Operations Management

View More Free Quizzes
Related BrainMass Solutions

  • Describe the QUICS, discuss capitalization, convertible preferred

    AMR capitalization are recalculated if holders of 50% and 100% of the convertible preferred stock exchange are determined.

  • Debt for equity exchange for AMR

    Recalculate AMR's capitalization if holders of (i) 50% and (ii) 100% of the convertible preferred stock exchange them for QUICS. 3.

  • Saudi Arabia Stock Exchange (Tadawul).

    Saudi Arabia Stock Exchange also known as Tadawul is the only stock exchange on Saudi Arabia. Tadawul is the largest stock exchange in the Arab world with a total market capitalization of more than $500 billion.

  • Use of QUICS to restructure debt, risk to common stock

    2) Recalculate AMR's capitalization if holders of (i) 50% and (ii) 100% of the convertible preferred stock exchange them for QUICS 3) Calculate the increase in net income available for common stock that would result from (i) 50% and (ii) 100% of the

  • Finance: Calculate the Stock's Capitalization Rate

    333948 Dividend and Capital Gain Yield Dividend and Capital Gain Yield A stock with a current price of $25 / share pays a current annual dividend of $2 which is expected to increase by 4% per year. What is the stock's capitalization rate?

  • Capitalization rate /total return

    Total return = (132,500-125,000+4,225)/125,000 = 9.38% The solution explains how to calculate the capitalization rate and total return

  • capitalization rate adjustments

    The solution emphasizes capitalization rate adjustments.

  • Irish Lottery and Exchange Rates

    Covered interest arbitrage mainly refers to the capitalization activity, which occurs due to the differences in the interest rate of two countries at the time of possible exchange rate risks.

  • Stock price

    Thereafter, dividend growth is expected to be 20 percent a year for 5 years (i.e., until year 6) and zero thereafter. If the market capitalization rate for each stock is 10 percent, which stock is the most valuable?

View More Related Solutions