*FOR NEEL*

Attached are the questions to the cases. Please confirm receiving them.

MSDI

In addition to answering the questions below, an Excel Spreadsheet needs to be completed for this assignment. Please include a printout of the spreadsheet along with your answers to any questions (below) which are not easily seen on the spreadsheet. If you need more than one worksheet to complete the steps below, please turn in printouts of all your spreadsheets with this assignment.

Steps/Questions

1. Assuming that the U.S. inflation rate is expected to be a constant 4% and the U.S. nominal WACC is 13%, use the International Fisher Effect (real interest rates are the same in all countries at any one time) to calculate the Spanish nominal WACC.

2. Calculate the cash flow from the after-tax cost savings from the new equipment in years 1-10 (from exhibit 2 in the case).

3. Calculate the cash flow from the loss of the depreciation tax shield of the old equipment.

4. Calculate the after-tax salvage value of the old equipment

5. Calculate the depreciation tax shield from the new equipment.

6. Calculate the NPV (in pesetas) of this project.

7. Using Relative Purchasing Power Parity, determine the expected exchange rate for each of the next ten years.

8. Calculate the dollar cash flows based on the exchange rates you came up with.

9. Calculate the NPV (in dollars) of this project.

10. Look at the NPVs you calculated in pesetas and in dollars. Look at the current peseta/dollar exchange rate. Based on this exchange rate, is one NPV higher than the other, or are they both the same? How do you interpret these results?

R.J. Reynolds

Please show your work for all three parts of question 7. I should be able to see exactly how you calculated your results.

Questions

1. What was the total cost of Nabisco? How will RJR pay for the last 49%?

2. What is the breakdown of how the first 51% has been financed? What portions are being refinanced? How much remains to be refinanced?

3. Why does RJR prefer to use debt rather than equity?

4. What are the concerns about issuing debt in the domestic market?

5. What advantages might RJR have if it issues debt in the Euromarket?

6. What is a Dual Currency Bond? Who might be interested in buying the one suggested for RJR and why?

7. What would be the all-in cost of financing (The IRR) for each of the following:

a. 5-year Eurodollar bond

b. 5-year Euroyen bond hedged into dollars (involves converting yen to dollars at the forward exchange rates found in Exhibit 8)

c. 5-year Dual Currency Bond hedged into dollars (involves converting yen to dollars at the forward exchange rates found in Exhibit 8)

8. What do you suggest that RJR do? Why?

Dozier Industries

Please show exactly how you came up with the answer to each of the quantitative questions below. Show your work. Show the formulas you used to get each value. If you attach a printout from an Excel spreadsheet, please label exactly what formula you are using to get each value.

Questions

1. What is Dozier’s foreign exchange exposure? That is, what exchange rate movements might hurt them?

2. At what exchange rate will Dozier’s entire profit be wiped out?

3. Describe how Dozier could hedge this exposure with a forward contract. Be specific and include the correct numbers.

4. Describe how Dozier could hedge this exposure by borrowing pounds. Again, be specific and include the correct numbers.

5. Would Dozier be better served by hedging its exposure with a forward contract or by borrowing pounds? Why?