Sandrine Machinery is a Swiss multinational manufacturingcompany. Currently, Sandrine’s financial planners are considering undertaking a 1-yearproject in the United States. The project’s expected dollar-denominated cash flows consistof an initial investment of $2,000 and a cash inflow the following year of $2,400. Sandrineestimates that its risk-adjusted cost of capital is 10%. Currently, 1 U.S. dollar will buy0.96 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding3%, while similar securities in Switzerland are yielding 1.50%.a. If this project was instead undertaken by a similar U.S.-based company with the samerisk-adjusted cost of capital, what would be the net present value and rate of returngenerated by this project?b. What is the expected forward exchange rate 1 year from now?c. If Sandrine undertakes the project, what is the net present value and rate of return ofthe project for Sandrine?
Sandrine Machinery is a Swiss multinational manufacturing
company. Currently, Sandrine’s financial planners are considering undertaking a 1-year
project in the United States. The project’s expected dollar-denominated cash flows consist
of an initial investment of $2,000 and a
estimates that its risk-adjusted cost of capital is 10%. Currently, 1 U.S. dollar will buy
0.96 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding
3%, while similar securities in Switzerland are yielding 1.50%.
a. If this project was instead undertaken by a similar U.S.-based company with the same
risk-adjusted cost of capital, what would be the
generated by this project?
b. What is the expected forward exchange rate 1 year from now?
c. If Sandrine undertakes the project, what is the net present value and rate of return of
the project for Sandrine?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 5 images
