Problem 18-5 (algorithmic)E Question HelpDoohicky Devices. Doohickey Devices, Inc., manufactures design components for personal computers. Until the present, manufacturing has been subcontracted to other companies, but for reasons of quality control Doohicky has decided to manufacture thecomponents itself in Asia. Analysis has narrowed the choice to two possibilities, Penang, Malaysia, and Manila, the Philippines. At the moment only the summary of expected, after-tax, cash flows displayed in the popup table, E, is available. Although mostoperating outflows would be in Malaysian ringgit or Philippine pesos, some additional U.S. dollar cash outflows would be necessary, as shown in the above popup table.The Malaysia ringgit currently trades at RM3.7447/$ and the Philippine peso trades at Ps48.34/$. Doohicky expects the Malaysian ringgit to appreciate 1.9% per year against the dollar, and the Philippine peso to depreciate 5.1% per year against the dollar. Ifthe weighted average cost of capital for Doohicky Devices is 15.5%, which project looks more promising?Calculate the net dollar cash flows from the operations in Penang, Malysia for years 2012 through 2014 below: (Round the exchange rate to four decimal places and the dollar amount to the nearest cent.)Doohicky in Penang (After-tax)201220132014Net cash flows (ringgit)RM(27,000) RM8,200 RM7,000Expected exchange rate (ringgit/$)3.7447[spot / (1 + 0.019)]Cash flows ($)Cash outflows ($)(100.00)(110.00)Net total cash flows ($) Carambola de Honduras. Slinger Wayne, a U.S.-based private equity firm, is trying to determine what it should pay for a tool manufacturing firm in Honduras named Carambola. Slinger Wayne estimates that Carambola will generate a free cash flow of 14million Honduran lempiras (Lp) next year, and that this free cash flow will continue to grow at a constant rate of 7.0% per annum indefinitely.A private equity firm like Slinger Wayne, however, is not interested in owning a company for long, and plans to sell Carambola at the end of three years for approximately 10 times Carambola's free cash flow in that year. The current spot exchange rate isLp15.0367/$, but the Honduran inflation rate is expectedinternational investments like Carambola.remain at a relatively high rate of 14.0% per annum compared to the U.S. dollar inflation rate of only 5.0% per annum. Slinger Wayne expects to earn at least a 23.5% annual rate of return ona. What is Carambola worth if the Honduran lempira were to remain fixed over the three-year investment period?b. What is Carambola worth if the Honduran lempira were to change in value over time according to purchasing power parity?a. Calculate the free cash flows in Honduran lempiras (Lp) below: (Round to the nearest whole number.)Year 0Year 1Year 2Year 3Carambola's expected free cash flowLp14,000,000 LpLpExpected sale value in year 3LpTotal expected cash flowLpLpLpExpected exchange rate (Lp/$)15.0367Carambola's expected cash flow in US$

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Doohicky Devices. Doohickey Devices, Inc., manufactures design components for personal computers. Until the present, manufacturing has been subcontracted to other companies, but for reasons of quality control Doohicky has decided to manufacture the components itself in Asia. Analysis has narrowed the choice to two possibilities, Penang, Malaysia, Manila, the Philippines. At the moment only the summary of expected, after-tax, cash flows displayed in the popup table, . is available. Although most operating outflows would be in Malaysian ringgit or Philippine pesos, some additional U.S. dollar cash outflows would be necessary, as shown in the above popup table. The Malaysia ringgit currently trades at RM3.7447/$ and the Philippine peso trades at Ps48.34/S. Doohicky expects the Malaysian ringgit to appreciate 1.9% per year against the dollar, and the Philippine peso to depreciate 5.1% per year against the dollar. If the weighted average cost of capital for Doohicky Devices is 15.5%, which project looks more promising? Calculate the net dollar cash flows from the operations in Penang, Malysia for years 2012 through 2014 below: (Round the exchange rate to four decimal places and the dollar amount to the nearest cent.) Doohicky in Penang (After-tax) 2012 2013 2014 Net cash flows (ringgit) RM (27,000) RM 8,200 RM 7,000 Expected exchange rate (ringgit/$) [spot / (1 + 0.019)] 3.7447 Cash flows ($) %24 Cash outflows (S) (100.00) (110.00) Net total cash flows ($)

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q