# Question: mcdougan associates us mcdougan associates a usbased investment partnership borrows...

###### Question details

McDougan Associates (U.S.). McDougan Associates, a U.S.-based investment partnership, borrows €85,000,000 at a time when the exchange rate is $1.3395/€. The entire principal is to be repaid in three years, and interest is 6.250% per annum, paid annually in euros. The euro is expected to depreciate vis-à-vis the dollar at 3.3% per annum. What is the effective cost of this loan for McDougan?

Complete the following table to calculate the dollar cost of the euro-denominated debt for years 0 through 3. Enter a positive number for a cash inflow and negative for a cash outflow. (Round the amount to the nearest whole number and the exchange rate to four decimal places.)

Year 0 | Year 1 | Year 2 | Year 3 | |

Proceeds from borrowing euros |
€ 85,000,000 | |||

Interest payment due in euros |
€ | € | € | |

Repayment of principal in year 3 | -85,000,000 | |||

Total cash flow of euro-dominated debt | € | € | € | € |

Expected exchange rate, $/€ |
1.3395 | |||

Dollar equivalent of euro-denominated |
$ | $ | $ | $ |

cash flow |