Financing and Exchange Rates

Demonstrate your understanding of financial concepts by completing the following problems. Where appropriate, show or explain your work. You may use Excel to work on the problems.

Problem 1. Cash equation: Bettendorf Corporation has a book net worth of $17,800. The company’s long-term debt is $6,900. Its net working capital, excluding cash, is $1,600. Its fixed assets are $21,300. How much cash does the company have? If the current liabilities are $2,575, what are the current assets?

Problem 2. Rights offerings: Borkin Incorporated is proposing a rights offering. Currently, there are 560,000 shares outstanding at $85 each. There will be 65,000 new shares offered at $78 each. Calculate each of the following:

  1. The new market value of the company.
  2. The number of rights that are associated with one of the new shares.
  3. The ex-rights price.
  4. The value of a right.

Problem 3. Using spot and forward exchange rates: The spot exchange rate for the Canadian dollar (CAD) is 1.14 CAD and the six-month forward rate is 1.17 CAD. Calculate whether a U.S. dollar (USD) or a Canadian dollar is worth more.

Problem 4. Cross-rates and arbitrage: The Japanese yen (JPY) exchange rate is 96 JPY = 1 USD, and the British pound (GBP) exchange rate is 1 GBP = 1.72 USD. Calculate the cross-rate in terms of yen per pound.

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