Dell (US Company) is evaluating the proposal of a new Keyboard and computer accessories factory in an overseas country (Germany). The currency in the overseas country is Euro. The risk-free rate in the United States is 5 percent. Dell will be renting a premise of 50,000 Square feet for this facility. Annually the factory expects to sell 20,000 units of Keyboard at 3 per keyboard. Currently, the Euro and USD have an exchange rate of €1/$2. The total capital cost is 1.5 million USD and is depreciated using the straight-line method over three years to a zero-salvage value. Dell’s discount rate is 10%, and its home currency is USD. Assume; initially, Dell will require .1 million Euros in working capital for this project. However, after the project, Dell will not receive anything from the working capital. In Germany, the CFFA will be 0.9 million euros in the first year, followed by 1 million euros in the second year. The inflation rate in the United States is 8%, and the inflation rate in the UK is 6%. The final year cash flow from the asset will be 1.1 million euros. The risk-free rate in Germany is 7 percent. Based on NPV criteria, should this project be accepted? Show the detailed calculation process.
Question 01
Dell (US Company) is evaluating the proposal of a new Keyboard and computer accessories factory in an overseas country (Germany). The currency in the overseas country is Euro. The risk-free rate in the United States is 5 percent. Dell will be renting a premise of 50,000 Square feet for this facility. Annually the factory expects to sell 20,000 units of Keyboard at 3 per keyboard. Currently, the Euro and USD have an exchange rate of €1/$2. The total capital cost is 1.5 million USD and is
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