# 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?