W. ws (5) D ws (5) 0 Year 0 (Today) 0 15,000 0 1.50 0 20,000 0 1.00 * Year 1 8000 1000 500 1.46 12,000 1500 500 0.96 Year 2 8000 1000 500 1.45 12.000 1500 500 0.94 Year 3 8000 1000 500 1.44 12.000 1500 500 0.92
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- Consider the following international investment opportunity. It involves a gold mine that can be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up. Year 0: -64,000 Euros Year 1: 160,000 Euros Year 2: -100,000 Euros The current exchange rate is $1.60 = 1 Euro. The inflation rate in the U.S. is 6 percent and in the euro zone 2 percent. The appropriate cost of capital to a U.S. -based firm for a domestic project of this risk is 8 percent. Find the dollar cash flows to compute the dollar - denominated NPV of this project. And also find the euro - zone cost of capital.Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in Portugal. You are in Etemadi's corporate finance department and are responsible for deciding whether to undertake the project. The expected free cash flows, in euros, are shown here: Year 1 2 3 Free Cash Flow (E million) 0 -15 1 8.9 9.5 11.7 You know that the spot exchange rate is $0.87/€. In addition, the risk-free interest rate on dollars is 3.9% and the risk-free interest rate on euros is 56%. Assume that these markets are internationally integrated and the uncertainty in the free cash flows is not correlated with uncertainty in the exchange rate. You determine that the dollar WACC for these cash flows is 8.4%. What is the dollar present value of the project? Should Etemadi Amalgamated undertake the project? (Enter all outflows of cash as negative numbers.)The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: A. What is the payback period of this uneven cash flow? B. Does your answer change if year 10s cash inflow changes to $500,000?
- One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies. Consider this case: Jing Associates Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project: • The project requires an investment of AU$800,000 today and is expected to generate cash flows of AU$900,000 at the end of each of the next two years. • The current exchange rate of the U.S. dollar against the Australian dollar is $0.7877 per Australian dollar (AU$). • The one-year forward exchange rate is $0.8109 / AU$, and the two-year forward exchange rate is $0.8455 / AU$. • The firm's weighted average cost of capital (WACC) is 8.5%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? O $792,199 $861,086 $688,869 O $826,643 There are three major types of international credit markets. Read the following statement and then indicate which type of…Your US-based firm is evaluating a project in France with cash flows in Euros. Which of the following rates should you use as a risk-free rate? US Treasury- 3 month 0.50% US Treasury- 10 year 2.90% US Treasury Inflation-Indexed- 10 year -0.12% France Government Debt- 10 year 1.37% Germany Government Debt- 10 year 0.85% AAA-rated Euro Area Central Government Bond- 10 year 0.92%A company in country X with currency XSD is analyzing a potential investment in country Y with currency YSD. The best estimate is that YSD will be devalued in the international markets at an average of 3%. If the IRR of this project in country Y is 21% what is the IRR of this project in country X?
- Assume the following information for Sazea Bhd. a U.S. based MNC that is considering to obtain funding for a project in Malaysia: U.S. risk-free rate = 4% Malaysian risk-free rate = 5% Risk premium on dollar-denominated debt provided by U.S. creditors = 3% Risk premium on euro-denominated debt provided by Malaysian creditors = 4% Beta of project = 1.2 Expected U.S. market return = 10% U.S. corporate tax rate = 30% Malaysian corporate tax rate = 40% Calculate Sazea’s cost of dollar-denominated equity.You are International Business Manager at a UK based company. Considering high demand your company plans a full-scale expansion. Your company has identified USA and Europe as potential markets. You are requested to analyse both projects and advise. In considering such large project, you must work out the risk of each project, cost of capital and NPV. Allocate discount rate for each project accordingly and justify why you allocated this rate in your discussion. Discuss how international risks can be managed. Projected cash flows in respective currencies: Year Net Cash Flow – USD USA Net Cash Flow - EUR Europe0 -20 million -20 million 1 2 million 2 million2 4 million 3 million3 5 million 4 million4 6 million 8 million5 8 million 8 million Instructions:a. Discuss viability of both projects in today’s global business context and allocate discount rate. b. How much investment is needed for each project and what is the NPV of each project? c.…arpet Baggers Inc. is proposing to construct a new bagging plant in a country in Europe. The two prime candidates are Germany and Switzerland. The forecasted cash flows from the proposed plants are as follows: The spot exchange rate for euros is $1.3/€, while the rate for Swiss francs is CHF 1.5/$. The interest rate is 5% in the United States, 4% in Switzerland, and 6% in the euro countries. The financial manager has suggested that, if the cash flows were stated in dollars, a return in excess of 10% would be acceptable. Should the company go ahead with either project? What is the NPV of the projects? If it must choose between them, which should it take? The table is attached to this question. Be comprehensive when Justifying your answer. Thank you.
- You work for a Space Mountain Rollercoasters, which is a firm whose home currency is the Mexican peso (MXN) and that is considering a foreign investment. The investment yields expected after-tax Turkish lira (TRY) cash flows (in millions) as follows: Year 0 Year 1 -TRY1,100 TRY625 Government bond yield Expected inflation Project required return Year 2 TRY625 Assume that Covered Interest Rate Parity holds and that your firm's management believes that Relative Purchasing Power Parity is the best way to predict future exchange rates over this investment's time horizon. You also have the following information: MXN O a. The gain from hedging with forwards is MXN 67.56 million O b. The gain from hedging with forwards is MXN 69.21 million O c. The gain from hedging with forwards is MXN 66.37 million O d. The gain from hedging with forwards is MXN 65.42 million O e. The gain from hedging with forwards is MXN 67.92 million Year 3 10.16% p.a. 7.00% p.a. 14.811% p.a. TRY625 TRY 14.24% p.a. 12.00%…One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies. Consider this case: Sacramone Products Co. is a U.S. firm evaluating a project in Australia. You have the following information about the project: • The project requires an investment of AU$1,230,000 today and is expected to generate cash flows of AU$1,200,000 at the end of each of the next two years. • The current exchange rate of the U.S. dollar against the Australian dollar is $0.7877 per Australian dollar (AU$). • The one-year forward exchange rate is $0.8109 / AU$, and the two-year forward exchange rate is $0.8455 / AU$. • The firm’s weighted average cost of capital (WACC) is 9%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? $933,397 $777,831 $738,939 $855,614Carpet Baggers Inc. is proposing to construct a new bagging plant in a country in Europe. The two prime candidates are Germany and Switzerland. The forecasted cash flows from the proposed plants are as follows: The table is attached as Added Image. please be detailed in your explantions. Thank you The spot exchange rate for euros is $1.3/€, while the rate for Swiss francs is CHF 1.5/$. The interest rate is 5% in the United States, 4% in Switzerland, and 6% in the euro countries. The financial manager has suggested that, if the cash flows were stated in dollars, a return in excess of 10% would be acceptable. *Should the company go ahead with either project? If it must choose between them, which should it take? Justify your answer.