It is the year 2021 and Pork Barrels, Inc., is considering construction of a new barrel plant in Spain. The forecasted cash flows in millions of euros are as follows: C0 C1 C2 C3 C4 C5 –95 +25 +35 +38 +42 +40 The spot exchange rate is $1.35 = €1. The interest rate in the United States is 8%, and the euro interest rate is 6%. You can assume that pork barrel production is effectively risk-free. a-1. Calculate the NPV of the euro cash flows from the project. a-2. What is the NPV in dollars? b. What are the dollar cash flows from the project if the company hedges against exchange rate changes?
It is the year 2021 and Pork Barrels, Inc., is considering construction of a new barrel plant in Spain. The forecasted cash flows in millions of euros are as follows: C0 C1 C2 C3 C4 C5 –95 +25 +35 +38 +42 +40 The spot exchange rate is $1.35 = €1. The interest rate in the United States is 8%, and the euro interest rate is 6%. You can assume that pork barrel production is effectively risk-free. a-1. Calculate the NPV of the euro cash flows from the project. a-2. What is the NPV in dollars? b. What are the dollar cash flows from the project if the company hedges against exchange rate changes?
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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It is the year 2021 and Pork Barrels, Inc., is considering construction of a new barrel plant in Spain. The
| C0 | C1 | C2 | C3 | C4 | C5 |
| –95 | +25 | +35 | +38 | +42 | +40 |
The spot exchange rate is $1.35 = €1. The interest rate in the United States is 8%, and the euro interest rate is 6%. You can assume that pork barrel production is effectively risk-free.
-
a-1. Calculate the NPV of the euro cash flows from the project.
-
a-2. What is the NPV in dollars?
-
b. What are the dollar cash flows from the project if the company hedges against exchange rate changes?
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