Capital Budgeting with Internationalization of WACC 1. ABC from Canada is considering a new investment project in the Euro zone. In your corporate finance division, you are required to determine whether the project should be undertaken. Expected free cash flows in euro are: Year Free cash Flow (mln euro) 0 -15 1 9 2 10 3 11 4 12 Spot rate is $1.5/€. The dollar risk free rate is 4% while the euro risk-free rate is 6%. Assume internationally integrated capital markets and no correlation between free cash flow uncertainty an exchange rate uncertainty. You estimate WACC to be 8.5%. Determine NPV and recommend whether the project should be undertaken. 2. ABC from Canada is considering a new investment project in the Euro zone. You assume internationally integrated capital markets and no correlation between free cash flow uncertainty a exchange rate uncertainty. You are asked to determine whether the project should be undertaken Expected free cash flows in euro are: Year Free cash Flow (mln euro) 07234 -25 12 14 15 15 The dollar WACC is 9.5%. The dollar risk free rate is 4.5% while the euro risk-free rate is 7%.) (i).What is the company euro WACC? (ii). What is the project NPV in euros?
Capital Budgeting with Internationalization of WACC 1. ABC from Canada is considering a new investment project in the Euro zone. In your corporate finance division, you are required to determine whether the project should be undertaken. Expected free cash flows in euro are: Year Free cash Flow (mln euro) 0 -15 1 9 2 10 3 11 4 12 Spot rate is $1.5/€. The dollar risk free rate is 4% while the euro risk-free rate is 6%. Assume internationally integrated capital markets and no correlation between free cash flow uncertainty an exchange rate uncertainty. You estimate WACC to be 8.5%. Determine NPV and recommend whether the project should be undertaken. 2. ABC from Canada is considering a new investment project in the Euro zone. You assume internationally integrated capital markets and no correlation between free cash flow uncertainty a exchange rate uncertainty. You are asked to determine whether the project should be undertaken Expected free cash flows in euro are: Year Free cash Flow (mln euro) 07234 -25 12 14 15 15 The dollar WACC is 9.5%. The dollar risk free rate is 4.5% while the euro risk-free rate is 7%.) (i).What is the company euro WACC? (ii). What is the project NPV in euros?
Chapter14: Multinational Capital Budgeting
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Transcribed Image Text:Capital Budgeting with Internationalization of WACC
1. ABC from Canada is considering a new investment project in the Euro zone. In your corporate finance
division, you are required to determine whether the project should be undertaken. Expected free cash
flows in euro are:
Year
Free cash Flow (mln euro)
0
-15
1
9
2
10
3
11
4
12
Spot rate is $1.5/€. The dollar risk free rate is 4% while the euro risk-free rate is 6%. Assume
internationally integrated capital markets and no correlation between free cash flow uncertainty an
exchange rate uncertainty. You estimate WACC to be 8.5%.
Determine NPV and recommend whether the project should be undertaken.
2. ABC from Canada is considering a new investment project in the Euro zone. You assume
internationally integrated capital markets and no correlation between free cash flow uncertainty a
exchange rate uncertainty. You are asked to determine whether the project should be undertaken
Expected free cash flows in euro are:
Year
Free cash Flow (mln euro)
07234
-25
12
14
15
15
The dollar WACC is 9.5%. The dollar risk free rate is 4.5% while the euro risk-free rate is 7%.)
(i).What is the company euro WACC?
(ii). What is the project NPV in euros?
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