Financing Analysis, business and finance homework help

Financing Analysis

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For this week’s course project activities, gather information on Wolverine’s financing requirements and strategies. Based on this information, identify some of the unique challenges that MNCs encounter in their global investment and financing decisions, and options for effectively dealing with these challenges in an era of increasing globalization of business activities.

Complete Parts 4–9 of the analysis:

  1. Assume that Wolverine expects to receive NZ$500,000 at the end of Year 1. The existing spot rate of the New Zealand dollar is $0.60, while the one-year forward rate is $0.62. Wolverine has created a probability distribution for the future spot rate in one year as follows:

Future Spot Rate

Probability

$0.61

20%

$0.63

50%

$0.67

30%

United States

New Zealand

Deposit Rate

8%

5%

Borrowing Rate

9%

6%

Given the above information, determine whether a forward hedge, money market hedge, or currency options hedge would be most appropriate to mitigate currency risk. Then, compare your choice of hedging technique to an unhedged strategy and recommend whether Wolverine should hedge its receivables.

  1. Assume that Wolverine expects to need NZ$1 million in one year to meet its short-term obligations (for example, accounts payable). Using any relevant information from Part 4, determine whether a forward hedge, money market hedge, or a currency options hedge would be the most appropriate tool. Then, compare your choice with an unhedged strategy and decide whether Wolverine should hedge its payables positions.
  2. Assume that Wolverine uses the original financing proposal in Part 1 and that funds are blocked until the subsidiary is sold. The funds to be remitted are reinvested at a rate of 6%, after taxes, until the end of Year 3. How is the project NPV affected by this scenario?
  3. What is the break-even salvage value of this project if Wolverine uses the original financing proposal and funds are not blocked? Discuss your answer.
  4. Assume that Wolverine decides to implement the project using the original financing proposal. Also assume that after one year, a New Zealand firm offers Wolverine a price of $27 million after taxes for the subsidiary and Wolverine’s original forecasts for Years 2 and 3 have not changed. Should Wolverine accept or reject the offer? Explain.
  5. Based on the information gathered above, what are some unique challenges that MNCs encounter in their global investment and financing decisions? How should they effectively deal with these challenges in an era of increasing globalization of business activities?

Refer to the background data provided in the course project description as you prepare each component of the project. Contact your instructor with any questions about this assignment or your course project.

Submit your responses in the assignment area, using Excel for all calculations. Refer to the scoring guide prior to submission to ensure you meet all evaluation criteria.

Note: Your instructor may also use the Writing Feedback Tool to provide feedback on your writing. In the tool, click the linked resources for helpful writing information.

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