Mauna Loa Macadamia. Mauna Loa Macadamia, a macadamia nut subsidiary of Hershey's with plantations on the...

 

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Mauna Loa Macadamia. Mauna Loa Macadamia, a macadamia nut subsidiary of Hershey's with plantations on the slopes of its namesake volcano in Hilo, Hawaii, exports macadamia nuts worldwide. The Japanese market is its biggest export market, with average annual sales invoiced in yen to Japanese customers of ¥2,160,000,000. At the present exchange rate of Y120/S, this is equivalent to $18,000,000. Sales are relatively equally distributed throughout the year. They show up as a ¥45,000,000 account receivable on Mauna Loa's balance sheet. Credit terms to each customer allow for 60 days before payment is due. Monthly cash collections are typically ¥180,000,000. Mauna Loa would like to hedge its yen receipts, but it has too many customers and transactions to make it practical to sell each receivable forward. It does not want to use options because they are considered to be too expensive for this particular purpose. Therefore, they have decided to use a "matching" hedge by borrowing yen. Assume the annual interest rate on the loan is 4.00%. a. How much should Mauna Loa borrow in U.S. dollars? b. What should be the terms of payment on the yen loan? a. How much should Mauna Loa borrow U.S. dollars? (Round to the nearest dollar.) b. What should be the terms of payment on the yen loan? (Select the best choice below.) O A. Mauna Loa should borrow both ¥45,000,000 accounts receivable and cash flows to cover its accounting exposure and operating exposure at the same time. O B. The loan should be repaid out of the monthly cash flow, with payments on principal only. The interest payment one year hence has already been covered by borrowing both principal and interest upfront. OC. The loan should be repaid out of the monthly cash flow, with payments on both principal and interest. O D. Mauna Loa should borrow ¥45,000,000 accounts receivable to cover its accounting exposure, not only borrow the cash flows to cover its operating exposure. Mauna Loa Macadamia. Mauna Loa Macadamia, a macadamia nut subsidiary of Hershey's with plantations on the slopes of its namesake volcano in Hilo, Hawaii, exports macadamia nuts worldwide. The Japanese market is its biggest export market, with average annual sales invoiced in yen to Japanese customers of ¥2,160,000,000. At the present exchange rate of Y120/S, this is equivalent to $18,000,000. Sales are relatively equally distributed throughout the year. They show up as a ¥45,000,000 account receivable on Mauna Loa's balance sheet. Credit terms to each customer allow for 60 days before payment is due. Monthly cash collections are typically ¥180,000,000. Mauna Loa would like to hedge its yen receipts, but it has too many customers and transactions to make it practical to sell each receivable forward. It does not want to use options because they are considered to be too expensive for this particular purpose. Therefore, they have decided to use a "matching" hedge by borrowing yen. Assume the annual interest rate on the loan is 4.00%. a. How much should Mauna Loa borrow in U.S. dollars? b. What should be the terms of payment on the yen loan? a. How much should Mauna Loa borrow U.S. dollars? (Round to the nearest dollar.) b. What should be the terms of payment on the yen loan? (Select the best choice below.) O A. Mauna Loa should borrow both ¥45,000,000 accounts receivable and cash flows to cover its accounting exposure and operating exposure at the same time. O B. The loan should be repaid out of the monthly cash flow, with payments on principal only. The interest payment one year hence has already been covered by borrowing both principal and interest upfront. OC. The loan should be repaid out of the monthly cash flow, with payments on both principal and interest. O D. Mauna Loa should borrow ¥45,000,000 accounts receivable to cover its accounting exposure, not only borrow the cash flows to cover its operating exposure.

Answer rating: 100% (QA)

Solution aUS to be borrow Values Units One months cash flow 1800000000 Yen Months per yea... View the full answer