1. If a German firm desires to avoid the risk from exchange rate fluctuations, and it will receive $180,000 in 180 days from its business client in the United States, it could:

obtain a 180-day forward sale contract on U.S. dollars(i.e., sell a 180-day forward contract on U.S. dollars).

obtain a 180-day forward buy contract on U.S. dollars(i.e., buy a 180-day forward contract on U.S. dollars).

purchase a 180-day call options on U.S. dollars.

buy U.S. dollars when it’s due at the spot market with the spot rate.

2. Your firm needs a computerized machine tool lathe which costs $50,000, and requires $12,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 35% and a discount rate of 12%.

What is the project’s EAC assuming the machine is worthless at the end of year 3?

a. –$ 6,881

b. –$12,049

c. –$14,771

d. –$22,715

e. –$23,099