In may 1988 walt disney productions sold to japanese, Ask an Expert

Finance

problem: In May 1988, Walt Disney Productions sold to Japanese investors a twenty (20) year stream of projected yen royalties from Tokyo Disneyland. The present value of that stream of royalties, discounted at 6 percent [return required by the Japanese investors], was ¥93 billion. Disney took the yen proceeds, converted them to dollars, and invested the dollars in bonds yielding 10%. According to Disney's CFO, "In effect, we got money at a 6 percent discount rate, reinvested it at 10 percent and hedged our royalty stream against yen fluctuations - all in one transaction."

[A] At the time of the sale, the exchange rate was ¥124 = $1. Determine dollar amount did Disney realize from the sale of its yen proceeds?

[B] Show the equivalence between Disney's transaction and a currency swap. [Suggestion: A diagram would help)

[C] Did Disney achieve the equivalent of a free lunch through its transaction?

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M921503

Have any Question?Write your Review or question?

Related Questions in Basic Finance

Express surgerys preferred stock which has a par value

Express Surgery's preferred stock, which has a par value equal to $110 per share, pays an annual dividend equal to 9% of the par value. If investors require a 15% return, what's the stock's market value?

Suppose you bought a five-year zero-coupon treasury bond

Suppose you bought a five-year zero-coupon Treasury bond with $ 1000 face value for $800. Answer the following questions: (a) What is the yield to maturity on the bond? (b) Assume the yield to maturity on comparable bond ...

Net income is 300 million depreciation is 70 million

Net income is 300 million, depreciation is 70 million, capital expenditures are 120 million, investment in working capital is 30 million, interest expenses (before tax) are 40 million, and outstanding debt is 850 million ...

When restating nonmonetary asset accounts the price index

When restating nonmonetary asset accounts, the price index at the current date represents the price index from which the conversion is made, and the price index at the time of acquisition represents the index to which th ...

Ultra petroleum has earnings per share of 156 and a pe

Ultra Petroleum has earnings per share of $1.56 and a P/E ratio of $32.48. What is the stock price?

Choose an industry and consider what and how it can hedge

Choose an industry, and consider what and how it can hedge in its favor. Introduce the industry, and state what it might hedge, and why. Explain what you would do if put in charge of the decision to hedge or not.

Question - a company currently pays a dividend of 4 per

Question - A company currently pays a dividend of $4 per share (D0 = $4). It is estimated that the company's dividend will grow at a rate of 19% per year for the next 2 years, then at a constant rate of 7% thereafter. Th ...

Marlene decides to take the investors offer she buys the

Marlene decides to take the investor's offer. She buys the business and begins paying the $5,000 monthly payments to the investor. Shortly thereafter, she realizes what a bargain she found. She's learned that, because of ...

Fincorp will pay a year-end dividend of 280 per share which

Fincorp will pay a year-end dividend of $2.80 per share, which is expected to grow at a rate of 2% for the indefinite future. The discount rate is 10%. a. What is the stock selling for? (Do not round intermediate calcu ...

Why should investors who identify positive-npv trades be

Why should investors who identify positive-NPV trades be skeptical about their findings if they don't inside information or a competitive advantage? What return should the average investor expect to receive?

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Basic Finance Expert