The next 3 questions are based on the following information. You work for a firm whose home currency is the Russian Ruble (RUB) and that is considering a foreign investment. The investment yields expected after-tax British Pound (GBP) cash flows (in mill in Year 0, and GBP141 in each of the 3 years of the life of the project. The expected rates of inflation in each country are constant per year: 6% in Russia, and 2.50% in the UK. From the project's p return is 5.72%, while from the parent's perspective, the required rate of return is 13.88 %. The spot exchange rate is GBP0.009423/RUB. What is the NPV of the project from the parent company's perspective? O a. -RUB2.132.247 million O b. RUB939.798 million О с. -RUB6.610.153 million Od -RUB41.990 million
The next 3 questions are based on the following information. You work for a firm whose home currency is the Russian Ruble (RUB) and that is considering a foreign investment. The investment yields expected after-tax British Pound (GBP) cash flows (in mill in Year 0, and GBP141 in each of the 3 years of the life of the project. The expected rates of inflation in each country are constant per year: 6% in Russia, and 2.50% in the UK. From the project's p return is 5.72%, while from the parent's perspective, the required rate of return is 13.88 %. The spot exchange rate is GBP0.009423/RUB. What is the NPV of the project from the parent company's perspective? O a. -RUB2.132.247 million O b. RUB939.798 million О с. -RUB6.610.153 million Od -RUB41.990 million
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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Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
P9
Transcribed Image Text:The next 3 questions are based on the following information.
You work for a firm whose home currency is the Russian Ruble (RUB) and that is considering a foreign investment. The investment yields expected after-tax British Pound (GBP) cash flows (in millions) as follows: -GBP370
in Year 0, and GBP141 in each of the 3 years of the life of the project. The expected rates of inflation in each country are constant per year: 6% in Russia, and 2.50% in the UK. From the project's perspective the required
return is 5.72%, while from the parent's perspective, the required rate of return is 13.88%. The spot exchange rate is GBP0.009423/RUB.
What is the NPV of the project from the parent company's perspective?
-RUB2,132.247 million
RUB939.798 million
-RUB6,610.153 million
O d.
-RUB41.990 million
O e. None of the options in this question are correct
Oa.
O b.
O c.
What is the NPV of the project from the project's perspective?
O a.
O b.
O C.
O d.
O e.
GBP0.083 million
-GBP0.396 million
RUBO.922 million
-RUB4,456.076 million
None of the options in this question are correct.
What is the correct course of action for the managers of the firm?
O a.
Accept the project.
O b.
Accept the project. However, the firm should try to find a way to hedge the currency risk now to capture the NPV. Finance in the local currency, use currency forwards and sell the project to a local investor.
Reject the project because it is only adding value from the parent's perspective because of forecast favourable movements in the exchange rate.
O c.
O d.
Reject the project. It is not financially viable from both the project's perspective and the parent's perspective.
O e. There is not enough information to infer the correct course of action.
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