Grupo Modelo S.A.B. de C.V. Grupo Modelo, a brewery out of Mexico that exports s
ID: 2790843 • Letter: G
Question
Grupo Modelo S.A.B. de C.V. Grupo Modelo, a brewery out of Mexico that exports such well-known varieties as Corona, Modelo, ad Paciico, 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. Sel Japanese yen bonds at par yielding 3.30% per annum. The current exchange rate is ¥106.00 $ and the yen s expected to strengthen against the dollar by 2.1% per annum. What is the effect ve cost of the yen-denorninated loan for Grupo Modelo? b. Sell euro-denominated bonds at par yielding 6.709 per annum. The current exchange rate is $1.1990/€. and the euro is expected to weaken against the dollar by 2.3% per annum. what is the effective cost of the euro-denominated loan for Grupo Madelo? c. Sell US dollar bonds at par yielding 5.40% per annum. What is the effective cost of the dollar-denominated loan for Grupo Modelo? d. Which course of action do you recammend Grupo Modelo take and why? a. Complete the following table to calculate the dollar cost of the yen-denorninated 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 Year Year Year Year Cash flow in ¥ 106.00 Exchange rate. Cash flow in $ What is the effective cost of the yen-denominated loan for Grupo Modelo? 10,000,000$ 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 infow and a negative number for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to four decimal places.) % (Round to two decimal places.)Explanation / Answer
(A) YEN Bonds Years 0 1 2 3 4 CF Yen 1060000000 34980000 34980000 34980000 34980000 Ex Rate 106 103.8197845 101.6844119 99.59295972 97.5445247 CF $ 10000000 336930 344005.53 351229.6461 358605.4687 Calculations for Blanks Years 0 1 2 3 4 CF Yen $ x Rate Principle X 3.3% Principle X 3.3% Principle X 3.3% Principle X 3.3% Ex Rate(Yen/$) 106 Last year rate/(1+0.021) Last year rate/(1+0.021) Last year rate/(1+0.021) Last year rate/(1+0.021) CF $ 10000000 yen/rate yen/rate yen/rate yen/rate Effectiv Cost of borrowing - 4 year rate Four years Return on bond lost/CF At t0 ($ returns lost/10000000) x 100 13.9077% Annual rate 4 year rate X 1/4 = 3.4769% (B) EURO Bonds Years 0 1 2 3 4 CF Euro 8340283.57 558798.9992 558798.9992 558798.9992 558798.9992 Ex Rate ($/Euro) 1.199 1.171423 1.144480271 1.118157225 1.092439609 CF $ 10000000 654590 639534.43 624825.1381 610454.1599 Calculations for Blanks Years 0 1 2 3 4 CF Yen $/Rate Principle X 6.7% Principle X 6.7% Principle X 6.7% Principle X 6.7% Ex Rate 1.199 Last year rate*(1-0.023) Last year rate*(1-0.023) Last year rate*(1-0.023) Last year rate*(1-0.023) CF $ 10000000 Euro/Rate Euro/Rate Euro/Rate Euro/Rate Effectiv Cost of borrowing - 4 year rate Four years Return on bond lost/CF At t0 ($ returns lost/10000000) x 100 25.2940% Annual rate 4 year rate X 1/4 = 6.3235% (C) $ Bonds Years 0 1 2 3 4 CF $ 10000000 540000 540000 540000 540000 Calculations for Blanks Years 0 1 2 3 4 CF $ 10000000 principle X 5.4% principle X 5.4% principle X 5.4% principle X 5.4% Effectiv Cost of borrowing - 4 year rate Four years Return on bond lost/CF At t0 ($ returns lost/10000000) x 100 21.60% Annual rate 4 year rate X 1/4 = 5.40% (d) Yen Bonds should be sold as return lost is the lowerst. Please provide feedback.. Thanks in advance.. :-)
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