Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in Portugal. You are in Etemad's corporate finance department and are responsible for deciding whether to undertake the project. The expected free cash flows, in euros, are shown here Year 0 1 2 Free Cash Flow (Emillion) -15.1 89 9.5 You know that the spot exchange rate is $0 87/€. In addition, the risk-free interest rate on dollars is 3.9% and the risk-free interest rate on euros is 5 6%. Assume that these markets are internationally integrated and the uncertainty in the free cash flows is not correlated with uncertainty in the exchange rate. You determine that the dollar WACC for these cash flows is 8.4%. What is the dollar present value of the project? Should Etemadi Amalgamated undertake the project? (Enter all outflows of cash as negative numbers.)

Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in Portugal. You are in Etemad's corporate finance department and are responsible for deciding whether to undertake the project. The expected free cash flows, in euros, are shown here Year 0 1 2 Free Cash Flow (Emillion) -15.1 89 9.5 You know that the spot exchange rate is $0 87/€. In addition, the risk-free interest rate on dollars is 3.9% and the risk-free interest rate on euros is 5 6%. Assume that these markets are internationally integrated and the uncertainty in the free cash flows is not correlated with uncertainty in the exchange rate. You determine that the dollar WACC for these cash flows is 8.4%. What is the dollar present value of the project? Should Etemadi Amalgamated undertake the project? (Enter all outflows of cash as negative numbers.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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