Akuaba Construction Co entered into an agreement
b). Akuaba Construction Co entered into an agreement with the government of Ghana in 2018 to build a price processing factory at New Edubiase under the One district one factory program, The
Each foreign bond has a par value of 500 Naira and pays interest in Naira at the end of each year of 6•1%. The bonds will be redeemed in five years’ time at par. The current cost of debt of Naira-denominated bonds of similar risk is 7%.
In addition to domestic sales, Akuaba Construction Co exports goods to Nigeria and receives payment for export sales in Naira. Approximately 40% of production is exported to Nigeria.
The spot exchange rate is 6•00 Naira/$ and the 12-month forward exchange rate is 6•07 Naira/$. Akuaba Construction Co can borrow money on a short-term basis at 4% per year in its home currency and it can deposit money at 5% per year in Nigeria where the foreign bonds were issued.
Assume that Akuaba Construction Co has no surplus cash at the present time:
Discuss and illustrate how a
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