Find the net exposure of the mnc with the following

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44 Find the net exposure of the MNC with the following intra affiliate transactionsshown:$40$15 a) $55b) $65c) $800d)none of the aboveAnswer: b) Rationale: PowerPoint slides 39-41$10$35$40$30$20$25 $60$40$10$30$20$30Eun/Resnick 4e105
Should the Firm Hedge?45In evaluating the pros and cons of corporate risk management, one argument againsthedging is
46If a firm faces progressive tax rates
47 In evaluating the pros and cons of corporate risk management, “marketimperfections” refer to:
48ABC Inc., an exporting firm, expects to earn $20 million if the dollar depreciates, butonly $10 million if the dollar appreciates. Assume that the dollar has an equal chanceof appreciating or depreciating. Calculate the expected tax of ABC if it is operatingin a foreign country that has progressive corporate taxes as shown below:Corporate income tax rate = 15% for the first $7,500,000.Corporate income tax rate = 30% for earnings exceeding $7,500,000.a)$3,375,000b)$6,000,000c)$1,500,000d)$4,500,000Answer: a) Rationale: Expected tax: 0.50 × (0.15 × $7,500,000 + 0.30 × $2,500,000) + 0.50 × (0.15 × $7,500,000 + 0.30 × $12,500,000)= 0.50 × ($1,125,000 + $750,000) + 0.50 × ($1,125,000 + $3,750,000= $3,375,000Eun/Resnick 4e106
49ABC Inc., an exporting firm, expects to earn $20 million if the dollar depreciates, butonly $10 million if the dollar appreciates. Assume that the dollar has an equal chanceof appreciating or depreciating. Step one: calculate the expected tax of ABC if it isoperating in a foreign country that has progressive corporate taxes as shown below:Corporate income tax rate = 15% for the first $7,500,000.Corporate income tax rate = 30% for earnings exceeding $7,500,000.Step two: ABC is considering implementing a hedging program that will eliminate theirexchange rate risk: they will make a certain $15 million whether or not the dollarappreciates or depreciates. How much will they save in taxes if they implementthe program?

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