Scenario: You are the Chief Investment Officer of the company and has identified Malaysia as the next country to investment. (company: indorama ventures)
1. Calculate the cost of equity of the company? (5 marks)
2) Assuming the investment in Malaysia in fully funded by equity, provide an estimation for the investment’s discount rate. Show the calculation by taking appropriate assumptions. (5 marks)
3) Based on the exchange rate of home currency and Ringgit Malaysia for 2017-2021, explain the risk of transaction exposure and translation exposure. (10 marks)
4) Assuming your business operation in Malaysia commences in June 2022 and Ringgit Malaysia is softening against the home currency in the next 12-month. Examine the impact and propose a hedging strategy using: i. currency option. ii. currency futures