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$$ Nagasaki's famous Glover Gardens$($where Puccini's Madame Butterfly waited for the return of Lt$.$ Pinkerton$).$ The sale was priced in yen at $25$ comma $000$ comma $000,$ with payment due in three months. The exchange rate and interest rate data are shown in the popup$$ window: LOADING....

Note that the interest rate differentials vary slightly from the forward discounts on the yen because of time differences for the quotes. The spot $117\mathrm{.}632/$$$,$ for$$ example, is a$$ mid$-$point range. On April$11,$ the spot yen traded in London from yen $118\mathrm{.}471$ divided by $ to $116\mathrm{.}793/$$$.$Krystal$\text{'}$s Japanese competitors are currently borrowing yen from Japanese banks at a spread of two percentage points above the Japanese money rate.$$ Krystal's weighted average cost of capital is $16\mathrm{.}5\%,$ and the company wishes to protect the dollar value of this receivable.$$

$3-$month options are available from Kyushu$$ Bank: call option on $25$ comma $000$ comma $000$ at exercise price of $117\mathrm{.}000/$$: a $1\mathrm{.}2\%$premium; or a put option on $25$ comma $000$ comma $000,$ at exercise price of $117\mathrm{.}000/$$: a $3\mathrm{.}9\%$ premium.

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

b$.$ What is the$$ break$-$even reinvestment rate when comparing forward and money market$$ alternatives?