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분야
hwp1. Given that Blades expects to use the cash flows generated by the Thai subsidiary to pay the interest and principal of the notes, would the effective financing cost of the baht-denominated notes be affected by exchange rate movement? Would the effective financing cost of the yen-denominated notes be affected by exchange rate movements? How?
- baht-denominated notes
- yen denominated notes
2. Construct a spreadsheet to determine the annual effective financing percentage cost of the yen-denominated notes issued in each of the three scenarios for the future value of the yen. What is the probability that the financing cost of issuing yen-denominated notes is higher than the cost of issuing baht-denominated notes?
3. Using a spreadsheet, determine the expected annual effective financing percentage cost of issuing yen-denominated notes. How does this expected financing cost compare with the expected financing cost of the baht-denominated notes?
4. Based on your answers ti the previous questions, do you think Blades should issue yen- or baht-denominated notes?
5. What is the tradeoff involved?
- The directors voted to establish a subsidiary in Thailand
- Its initial estimates = 550 million Thai Baht(TB)
= $ 12.65 million (∵ spot rate = $0.023/TB)
- Now Blades has $2.65 million available
- The remaining $10 million (=TB434,782,609) should be obtained from other sources
- CFO prefers 'debt' to equity financing to raise the funds since Blades is a relatively small company whose stock is currently undervalued
- Two alternatives for debt financing: $10 million yen or baht-denominated notes
A. yen-denominated notes are available in increments of ¥125,000
= TB434,782,609 ÷ TB0.347826/¥ (spot rate) = ¥1,250,000,313
∴ ¥1,250,000,313 ÷ ¥125,000 = 10,000 yen-denominated notes
coupon rate = 10%
B. baht-denominated notes are available in increments of TB50,000
∴ TB434,782,609 ÷ TB50,000 = 8,696 baht-denominated notes
coupon rate = 15% (due to its unfavorable economic conditions)
- Blades uses the CF generated by the Thai subsidiary
to pay the interest on the notes and repay the principal in 5 years(maturity)
- The yen is expected to be appreciated (vs. the baht) in the future
Annual % Change in Yen (vs. Baht)
Probability
0%
20%
2%
50%
3%
30%
But since its future is uncertain, CFO compiled the following probability
- These expected appreciation of the yen should be taken into consideration for effective financing
