It is July $1,2020.$ You work as an analyst for Elsa Frigorifics in Lake Wobegon, MN$.$

Jorgen Bjorgen, the CEO, has ordered a pair of advanced ice$-$replicators from Germany.

The equipment will cost $140$ million, due in Euro, one year from now on July $1,2021.$

Jorgen is concerned about the foreign exchange exposure of this upcoming payment. During the last $12$ months, currency market volatility has been unusually high, fueled mostly by uncertainty about the potential weakness of the US dollar. If the dollar cost of the equipment ends up being above $$170$ million the project is not profitable anymore.

Diagonal Alley Bank offers the following spot rate and $12$ months forward points:

Spot $($$$/)1\mathrm{.}1212/1\mathrm{.}1216$

$12$ months $($$$/)84/89(\mathrm{.}0084/\mathrm{.}0089)$

In the interbank market, dealers quote forward points as pips $(1$ pip is equal to $0\mathrm{.}0001).$ To derive the outright forward rate, you need to add or subtract the appropriate forward points to or from the spot rate. If the forward bid points $<$ forward ask points $($forward premium$),$ add the forward points to the spot. If the forward bid points $>$ forward ask points $($forward discount$),$ subtract the forward points from the spot.

You look at Bloomberg for interest rates to calculate a money market forward alternative

USD rate $12-$months $0\mathrm{.}81\%/0\mathrm{.}85\%$

EUR rate $12-$months $0\mathrm{.}10\%/0\mathrm{.}12\%$

Question: Analyze the following alternative: Diagonal Alley Bank Forward Hedge

Explain the implementation of this hedge and the cash flows at maturity. $(1)$ What is the exchange rate that Elsa Frigorifics would have to pay if they used this alternative? $(2)$ What is the $ cost of the machinery?