I. Suppose that a company in India initially owns a factory worth 45 million rupees, that it has borrowed 1 million US dollars to finance its construction, and that these are its only assets and liabilities. A) If the exchange rate is initially 40 rupees per dollar, what is the initial value of the company, in rupees? B) If the rupee now depreciates by 20% what does the value of the company in rupees become? C) Would the effect of the depreciation on the value of the company be any different if it was measured in dollars?
I. Suppose that a company in India initially owns a factory worth 45 million rupees, that it has borrowed 1 million US dollars to finance its construction, and that these are its only assets and liabilities. A) If the exchange rate is initially 40 rupees per dollar, what is the initial value of the company, in rupees? B) If the rupee now depreciates by 20% what does the value of the company in rupees become? C) Would the effect of the depreciation on the value of the company be any different if it was measured in dollars?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:I. Suppose that a company in India initially owns a factory worth 45 million rupees, that
it has borrowed 1 million US dollars to finance its construction, and that these are its
only assets and liabilities.
A) If the exchange rate is initially 40 rupees per dollar, what is the initial value of
the company, in rupees?
B) If the rupee now depreciates by 20% what does the value of the company in
rupees become?
C) Would the effect of the depreciation on the value of the company be any different
if it was measured in dollars?
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