International Finance : Calculation of swap by ClassOf1

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Question:
International finance requires calculation of swap and loan amount for
Euros with given exchange rates.
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Mayo Corp. plans to modernize its German manufacturing facility. The estimated
financing needs are 30 million Euros. It finds it can get better financing terms if it issues
\$27 million of 6-year, 8% notes in the U.S. capital markets. Simultaneously, it enters into
an agreement with its German bank for an equivalent Euro loan swap. The euro loan
carries 10% interest rate. Assume an exchange rate of \$0.90/Euro. Show me Mayo
Corporation’s year zero, year one and year six cash flow in both Dollars and Euros for
each year. Show me issue dollar loan, swap dollars for euro and net cash flow for each
of these years. Also, inflows are show as positive values.

Solution:

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