The following questions must be considered in your solution for the Dozier Industries case. These questions are designed to aid you in addressing the main issues in this case but your solution to the case should not be in Questions & Answers format.
1. How profitable is the Dozier bid once the exchange-rate changes are acknowledged? How might the exchange-rate risk, which affected the value of the project, have been managed?
2. Assuming Dozier agrees with the given&-estimates for the project, determine the present value of the expected future cash inflow assuming (1) there is no hedge (2) the company hedges using a forward contract, (3) the company hedges using the Money Market.
3. Find the NPV and IRR of the project for each of the three alternative approaches to hedging.
4. Are the money markets and forward markets in Parity ?
5. How might exchange-rate risk be managed?
6. Explain which hedge is to be preferred and why?
7. With the hedge in place, can the company be completely sure there will be no exchange risk?
8. Was Dozier right to offer the project?