A US multinational corporation has operations in Bolivia through which it plans to sell a newproduct of 500,000 cans of beans per year for the next 3 years, at a price of BOB 4 per can afterincurring a variable cost of BOB 2.50 per can. The company will also incur a fixed cost of BOB120,000 per year. The company has invested BOB 900,000 today in manufacturing equipment forits Bolivian operations, which will be depreciated at $300,000 annually over its 3-year life. Thecorporation's required rate of return (WACC) is 20% and has a tax rate of 25%. The spot rate wasBOB 6.91/$ before it unexpectedly changed to BOB 7.25/$.What is the value of the Bolivian operations prior to the unexpected change in the spot rateassuming that the operations have a 3-year life only? (round to the nearest dollar)US$237,699US$107,453US$159,07688US$166,903

Prior to the unanticipated spot rate, the value of Bolivian operations was:Information Given, No. of…

Answered: What is the value of the Bolivian…

What is the value of the Bolivian operations prior to the unexpected change in the spot rate assuming that the operations have a 3-year life only? (round to the nearest dollar)

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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Concept explainers

International Bonds

A bond is fixed-income security where a lender comes into a contract with the borrower. The borrower agrees to make payment and interest at a specified date in the future or on maturity period. It is a type of financing that helps to fulfill and meet obligations. Many people invest in bonds because it is a simple form of security.

Question

A US multinational corporation has operations in Bolivia through which it plans to sell a new
product of 500,000 cans of beans per year for the next 3 years, at a price of BOB 4 per can after
incurring a variable cost of BOB 2.50 per can. The company will also incur a fixed cost of BOB
120,000 per year. The company has invested BOB 900,000 today in manufacturing equipment for
its Bolivian operations, which will be depreciated at $300,000 annually over its 3-year life. The
corporation's required rate of return (WACC) is 20% and has a tax rate of 25%. The spot rate was
BOB 6.91/$ before it unexpectedly changed to BOB 7.25/$.
What is the value of the Bolivian operations prior to the unexpected change in the spot rate
assuming that the operations have a 3-year life only? (round to the nearest dollar)
US$237,699
US$107,453
US$159,076
88
US$166,903

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