Grupo Modelo S.A.B. de C.V. Grupo Modelo, a brewery out of Mexico that exports such well-known varieties as Corona, Modelo, and Pacifico, is Mexican by incorporation. However, the company evaluates all business results, including financing costs, in U.S. dollars. The company needs to borrow $10,000,000 or the foreign currency equivalent for four years. For all issues, interest is payable once per year, at the end of the year. Available alternatives are as follows: a. Sell Japanese yen bonds at par yielding 3.10% per annum. The current exchange rate is 107.00/S, and the yen is expected to strengthen against the dollar by 2.3% per annum. What is the effective cost of the yen-denominated loan for Grupo Modelo? b. Sell euro-denominated bonds at par yielding 6.60% per annum. The current exchange rate is $1.1980/€, and the euro is expected to weaken against the dollar by 2.4% per annum. What is the effective cost of the euro-denominated loan for Grupo Modelo? c. Sell U.S. dollar bonds at par yielding 5.20% per annum. What is the effective cost of the dollar-denominated loan for Grupo Modelo? d. Which course of action do you recommend Grupo Modelo take and why? a. Complete the following table to calculate the dollar cost of the yen-denominated debt for years 0 through 4. Enter a positive number for a cash inflow and a negative number for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to two decimal places.) Year 0 Year 1 Year 2 Year 3 Year 4 Cash flow in Exchange rate, /$ Cash flow in $ $ 10,000,000 $ $ What is the effective cost of the yen-denominated loan for Grupo Modelo? % (Round to two decimal places.) b. Complete the following table to calculate the dollar cost of the euro-denominated debt for years 0 through 4. Enter a positive number for a cash inflow and a negative number for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to four decimal places.) Year 3 Year 4 Cash flow in € 107.00 Exchange rate, $/€ Year 0 1.1980 Year 1 Year 2 Cash flow in $ $ 10,000,000 $ $ What is the effective cost of the euro-denominated loan for Grupo Modelo? % (Round to two decimal places.) Year 0 10,000,000 $ c. Complete the following table to calculate the dollar cost of the dollar-denominated debt for years 0 through 4. Enter a positive number for a cash inflow and a negative number for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to two decimal places.) Year 1 Year 2 Year 3 Year 4 Cash flow in $ $ s What is the effective cost of the dollar-denominated loan for Grupo Modelo? % (Round to two decimal places.) d. Which course of action do you recommend Grupo Modelo take and why? (Select from the drop-down menu.) Given the expected exchange rate changes, the s $ bonds have the lowest all-in-cost of funds for the Mexico-based company, Grupo Modelo.

Grupo Modelo S.A.B. de C.V. Grupo Modelo, a brewery out of Mexico that exports such well-known varieties as Corona, Modelo, and Pacifico, is Mexican by incorporation. However, the company evaluates all business results, including financing costs, in U.S. dollars. The company needs to borrow $10,000,000 or the foreign currency equivalent for four years. For all issues, interest is payable once per year, at the end of the year. Available alternatives are as follows: a. Sell Japanese yen bonds at par yielding 3.10% per annum. The current exchange rate is 107.00/S, and the yen is expected to strengthen against the dollar by 2.3% per annum. What is the effective cost of the yen-denominated loan for Grupo Modelo? b. Sell euro-denominated bonds at par yielding 6.60% per annum. The current exchange rate is $1.1980/€, and the euro is expected to weaken against the dollar by 2.4% per annum. What is the effective cost of the euro-denominated loan for Grupo Modelo? c. Sell U.S. dollar bonds at par yielding 5.20% per annum. What is the effective cost of the dollar-denominated loan for Grupo Modelo? d. Which course of action do you recommend Grupo Modelo take and why? a. Complete the following table to calculate the dollar cost of the yen-denominated debt for years 0 through 4. Enter a positive number for a cash inflow and a negative number for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to two decimal places.) Year 0 Year 1 Year 2 Year 3 Year 4 Cash flow in Exchange rate, /$ Cash flow in $ $ 10,000,000 $ $ What is the effective cost of the yen-denominated loan for Grupo Modelo? % (Round to two decimal places.) b. Complete the following table to calculate the dollar cost of the euro-denominated debt for years 0 through 4. Enter a positive number for a cash inflow and a negative number for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to four decimal places.) Year 3 Year 4 Cash flow in € 107.00 Exchange rate, $/€ Year 0 1.1980 Year 1 Year 2 Cash flow in $ $ 10,000,000 $ $ What is the effective cost of the euro-denominated loan for Grupo Modelo? % (Round to two decimal places.) Year 0 10,000,000 $ c. Complete the following table to calculate the dollar cost of the dollar-denominated debt for years 0 through 4. Enter a positive number for a cash inflow and a negative number for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to two decimal places.) Year 1 Year 2 Year 3 Year 4 Cash flow in $ $ s What is the effective cost of the dollar-denominated loan for Grupo Modelo? % (Round to two decimal places.) d. Which course of action do you recommend Grupo Modelo take and why? (Select from the drop-down menu.) Given the expected exchange rate changes, the s $ bonds have the lowest all-in-cost of funds for the Mexico-based company, Grupo Modelo.

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter9: Taxation Of International Transactions

Section: Chapter Questions

Problem 27P

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