Krystal. Krystal is a U$.$S$.-$based company that manufactures, sells, and installs water purification equipment. On April $11,$ the company

sold a system to the City of Nagasaki, Japan, for installation in Nagasaki's famous Glover Gardens $($where Puccini's Madame Butterfly

waited for the return of Lt$.$ Pinkerton$).$ The sale was priced in yen at $26,000,000,$ with payment due in three months. The exchange rate

and interest rate data are shown in the popup window: $.$

Note that the interest rate differentials vary slightly from the forward discounts on the yen because of time differences for the quotes. The

spot $\frac{117\mathrm{.}726}{\text{\$}},$ for example, is a mid$-$point range. On April $11,$ the spot yen traded in London from $\frac{118\mathrm{.}792}{\text{\$}}$ to $\frac{116\mathrm{.}659}{\text{\$}}.$ Krystal's

Japanese competitors are currently borrowing yen from Japanese banks at a spread of two percentage points above the Japanese money

rate. Krystal's weighted average cost of capital is $17\%,$ and the company wishes to protect the dollar value of this receivable.

$3-$month options are available from Kyushu Bank: call option on $26,000,000$ at exercise price of $\frac{117\mathrm{.}000}{\text{\$}}$ : a $1\mathrm{.}4\%$ premium; or a put

option on $26,000,000,$ at exercise price of $\frac{117\mathrm{.}000}{\text{\$}}$ : a $3\mathrm{.}9\%$ premium.

a$.$ What are the costs and benefits of alternative hedges? Which would vou recommend, and why?

a$.$ How much in U$.$S$.$ dollars will Krystal receive in $3$ months without a hedge if the expected spot rate in $3$ months is assumed to be

$\frac{117\mathrm{.}726}{\text{\$}}?$

$ $($Round to the nearest cent.$)$

Data table

$($Click on the following icon in order to copy its contents into a spreadsheet.$)$