Task 3

[wg2113]

Hi,

Does anyone know how the existence of taxes influence the decision to hedge?

[bukithot]

Perhaps you could raise additional capital (debt) to fund the hedging costs?

[surdahl]

My two cents: Interest paid on debt is tax deductible, so raising debt vs raising equity is more cost effective from a tax standpoint. Loan payments are certain, but cash flows from the business are not. Hedging may help to mitigate the uncertainty of the cash flows