The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. The project's expected dollar cash flows consist of an initial investment of $1 million with cash inflows of $700,000 in Year 1 and $600,000 in Year 2. The risk-adjusted cost of capital for this project is 12%. The current exchange rate is 1,055 won per U.S. dollar. Risk-free interest rates in the United States and S. Korea are: What is the expected decimal places. U.S. S. Korea a. If this project were instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value generated by this project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ 1-Year 4.0% 3.0% What would be the rate of return generated by this project? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the expected forward exchange rate 1 year from now? (Hint: Take the perspective of the Korean company when identifying home and foreign currencies and direct quotes of exchange rates.) Do not round intermediate calculations. Round your answer to two decimal places. won per U.S. dollar forward exchange rate 2 years from now? (Hint: Take the perspective of the Korean company when identifying home and foreign currencies and direct quotes of exchange rates.) Do not round intermediate calculations. Round your answer to two Rate of return: 2-Year 5.25% 4.25% % won per U.S. dollar c. If Nam Sung undertakes the project, what is the net present value and rate of return of the project for Nam Sung? Do not round intermediate calculations. Enter your answer for the net present value in millions. For example, an answer of 1.23 million won should be entered as 1.23, not 1,230,000. Round your answers to two decimal places. NPV: million won
The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. The project's expected dollar cash flows consist of an initial investment of $1 million with cash inflows of $700,000 in Year 1 and $600,000 in Year 2. The risk-adjusted cost of capital for this project is 12%. The current exchange rate is 1,055 won per U.S. dollar. Risk-free interest rates in the United States and S. Korea are: What is the expected decimal places. U.S. S. Korea a. If this project were instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value generated by this project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ 1-Year 4.0% 3.0% What would be the rate of return generated by this project? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the expected forward exchange rate 1 year from now? (Hint: Take the perspective of the Korean company when identifying home and foreign currencies and direct quotes of exchange rates.) Do not round intermediate calculations. Round your answer to two decimal places. won per U.S. dollar forward exchange rate 2 years from now? (Hint: Take the perspective of the Korean company when identifying home and foreign currencies and direct quotes of exchange rates.) Do not round intermediate calculations. Round your answer to two Rate of return: 2-Year 5.25% 4.25% % won per U.S. dollar c. If Nam Sung undertakes the project, what is the net present value and rate of return of the project for Nam Sung? Do not round intermediate calculations. Enter your answer for the net present value in millions. For example, an answer of 1.23 million won should be entered as 1.23, not 1,230,000. Round your answers to two decimal places. NPV: million won
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 Debt, Cost of Preferred Stock
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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
Transcribed Image Text:The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. The project's expected dollar cash flows consist of an initial investment of $1 million with cash inflows of $700,000 in Year 1 and
$600,000 in Year 2. The risk-adjusted cost of capital for this project is 12%. The current exchange rate is 1,055 won per U.S. dollar. Risk-free interest rates in the United States and S. Korea are:
%
U.S.
S. Korea
a. If this project were instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value generated by this project? Do not round intermediate calculations. Round your answer to the nearest dollar.
$
What would be the rate of return generated by this project? Do not round intermediate calculations. Round your answer to two decimal places.
1-Year
4.0%
3.0%
Rate of return:
2-Year
5.25%
4.25%
b. What is the expected forward exchange rate 1 year from now? (Hint: Take the perspective of the Korean company when identifying home and foreign currencies and direct quotes of exchange rates.) Do not round intermediate calculations. Round your answer to two
decimal places.
won per U.S. dollar
What is the expected forward exchange rate 2 years from now? (Hint: Take the perspective of the Korean company when identifying home and foreign currencies and direct quotes of exchange rates.) Do not round intermediate calculations. Round your answer to two
decimal places.
%
won per U.S. dollar
c. If Nam Sung undertakes the project, what is the net present value and rate of return of the project for Nam Sung? Do not round intermediate calculations. Enter your answer for the net present value in millions. For example, an answer of 1.23 million won should be
entered as 1.23, not 1,230,000. Round your answers to two decimal places.
NPV:
million won
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