Question 1

Question 1: Discuss and provide support on which of the two bids (french and Japanese) you would accept and why? Assume the following:Loan principal amounts would be repaid in equal annual instalments over the lives of the loan.No further debt financing would be undertaken in connection with these rigs.Tax rate is 50%. The rigs to be depreciated over 5 years using a straight line method (hint: you should discount this by Ocean Drilling’s cost of debt. There are other financial side effects such as depreciation that shields that should be considered. Financing cash flows and depreciation tax shields for each of the bids should also be developed and included).Selection analysis of the bids should be based on more than just the price difference of the rigs.(Valuing foreign currency cash flows, financing subsidies in particular; and• Determining whether or not it makes sense to hedge foreign currency obligations, and if so, what instruments should be used to execute the hedge)Question 2: Provide the future outlook for the yen and FF against the US dollar? How would you forecast exchange rate movements for analytic purposes in this case?Question 3: Perform the valuation of financial subsidies in 2 methods: A) using forecasted spot exchange rates and

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