Exam 22: International Corporate Finance

Use the information for the question(s)below. KT Enterprises,a Canadian import-export trading company,is considering its international tax situation.Currently KT's Canadian tax rate is 35%.KT has significant operations in both Japan and Ireland.In Japan,the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%.In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%.KT's profits,which are fully and immediately repatriated,and foreign taxes paid for the current year are shown here (in millions): -After the Japanese taxes are paid,the amount of the earnings before interest and after taxes in dollars from the Japanese operations is closest to:

How can deferring repatriation of earnings benefit a firm?

The amount of the taxes paid in dollars for the Japanese operations is closest to:

Even though a project may generate foreign currency cash flows,the firm cares about the home currency value of the project.

The spot exchange rate for the British pound is 0.5 GBP/CAD.The one-year interest rate in Canada is 4% and the one-year interest rate in Britain is 5%.Based on these rates,what one-year forward exchange rate is consistent with the absence of arbitrage?

Consider the following equation: = (1 + )- 1 The term r_CAD in this equation refers to:

A Canadian importer needs $500,000 U.S.dollars in September,and decides to buy a call option on the USD for September delivery.Suppose a call option on the USD with a September expiration and a strike price of 1.20 USD/CADtrades for 0.0325 CAD per call on 1 USD.If,by the September expiration date,the USD depreciates to 1.23 USD/CAD,how much did the firm lose (in CAD)from hedging with the option,compared to remaining unhedged?

What are the three factors that drive the supply and demand for each currency?

A Canadian firm acquires a British firm that will generate cash flows of 10,000 pounds next year and these cash flows will grow at 6% a year.If the British WACC is 9% and the spot exchange rate is 1.9 CAD/GBP,what is the present value (PV)of the cash flows from this acquisition to domestic shareholders?

Consider the following equation: S × = The term F in this equation is:

The one-year forward exchange rate is 40 INR/USD.If the one-year interest rate in the United States is 4% and in India is 7%,what is the spot exchange rate so as to preclude arbitrage?

Consider the following equation: = (1 + )- 1 The term in this equation refers to:

Luther Industries,a Canadian firm,is considering an investment in Japan.The dollar cost of equity for Luther is 12%.The risk-free interest rates on dollars and yen are r_CAD = 5.5% and r_JPY = 1.5%,respectively.Luther industries is willing to assume that capital markets are internationally integrated.Luther Industries needs to know the comparable cost of equity in Japanese yen for a project with free cash flows that are uncorrelated with spot exchange rates.The yen cost of equity for Luther Industries is closest to: