Copper Mountain Group (U.S.). The Copper Mountain Group, a private equity firm headquartered in Boulder, Colorado,...
Copper Mountain Group (U.S.). The Copper Mountain Group, a private equity firm headquartered in Boulder, Colorado, borrows £5,200,000 for one year at 8.125%
interest.
a. What is the dollar cost of this debt if the pound depreciates from $2.0240/£ to $1.9460/£ over the year?
b. What is the dollar cost of this debt if the pound appreciates from $2.0240/£ to $2.1680/£ over the year?
Homework Answers
Amount to be repaid in Pound = 5,200,000(1+8.125%) = Pound 5,622,500
Dollar received when loan taken = 5,200,000*2.0240 = $10,524,800
a.Dollar to be paid = 5,622,500*1.9460 = $10,941,385
Dollar cost = $416,585 i.e. 3.96%
b.Dollar to be repaid = 5,622,500*2.1680 = $12,189,580
Dollar cost = $1,664,780 i.e. 15.82%
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