Purchase Solution

Financing Decision: Financing a Czech Investment

Not what you're looking for?

Ask Custom Question

Cuanto Corp. is a U. S. drug company that has attempted to capitalize on new opportunities to expand in Eastern Europe. The production costs in most Eastern European countries are very low, often less than one- fourth of the cost in Germany or Switzerland. Furthermore, there is a strong demand for drugs in Eastern Europe. Cuanto penetrated Eastern Europe by purchasing a 60 percent stake in Galena, a Czech firm that produces drugs.

a. Should Cuanto finance its investment in the Czech firm by borrowing dollars from a U. S. bank that would then be converted into koruna ( the Czech currency) or by borrowing koruna from a local Czech bank? What in-formation do you need to know to answer this question?

b. How can borrowing koruna locally from a Czech bank reduce the exposure of Cuanto to exchange rate risk?

c. How can borrowing koruna locally from a Czech bank reduce the exposure of Cuanto to political risk caused by government regulations?

Purchase this Solution
Solution Summary

This solution assists with a financial decision.

Solution Preview

Question A
The decision on what currency to finance the investment of Cuanto in the Czech Republic depends on the company's expectations of the future exchange rates between the U.S. dollars and the koruna. If the company expects that the dollar will significantly ...

Purchase this Solution
Free BrainMass Quizzes
Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

View More Free Quizzes
Related BrainMass Solutions

  • Residual Theory of Dividends

    If a Czech crown is equal to $.04 cents U.S., the U.S. dollar is equal to how many Czech crowns? Answer 0.40 4.00 25.00 400.00 What are the advantages and disadvantages of debt?

  • Investment Decision vs. Financing Decision

    596232 Investment Decision vs. Financing Decision Investment Vs. Financing Decision Discuss difference between the Investment Decision and the Financing Decision which a firm faces? a.

  • Discussing Initial Public Offerings (IPO's)

    There is a need of external financing for the expansion through acquisition. External financing is a good source of raising money besides internal funds.

  • investment and financing decision

    The financing decision will be taken to reduce the level of cost of capital for the firm. The investment decision will take this cost of capital as input for decision taking. This job explicates investment and financing decisions.

  • Investment based on the capital structure of a firm.

    While future returns are expected, the investment decision would create some advantages and disadvantages on the investorâ??s capital structure. Decision on capital structure would be a decision on sources of financing - either debt or equity.

  • Equity and Debt

    Verizon's financial controllers will need to evaluate such factors before making a final decision regarding the preferred source of financing.

  • The Role of Financial Management in a Firm

    The financing decision has a biggest impact on the profitability of any investment decision.

  • Applied Materials long-term financing policy

    Section One 1: Report on Applied Materials long-term financing policy & capital structure. a. Identify the firm's most recent long-term financing decision (e.g., debt, IPO, seasoned equity offering, secondary offering).

  • Finance Management: Stakeholders and Decision Making; Financial Statements

    This would be a detriment to attracting new or increased investment in the company, as there is a fear of the company being too far in debt.

View More Related Solutions