You are analyzing a potential 3-year investment in Switzerland. It will require an initial investment of SFr 540,000.00 and is forecasted to yield cashflows of SFr 540,000.00 for the next 3 years. As of today, the spot exchange rate is $0.6667/ SFr and the rates of inflation expected to prevail for the next year in the US is 7 % and in 8 % in Switzerland. Your estimated cost of capital in dollars is 16.7%. What is the NPV in dollars? (a) $425,391.63 (b) $245,409.63 (c) $638,055.54 (d) $548,449.87 (e) None of the above

You are analyzing a potential 3-year investment in Switzerland. It will require an initial investment of SFr 540,000.00 and is forecasted to yield cashflows of SFr 540,000.00 for the next 3 years. As of today, the spot exchange rate is $0.6667/ SFr and the rates of inflation expected to prevail for the next year in the US is 7 % and in 8 % in Switzerland. Your estimated cost of capital in dollars is 16.7%. What is the NPV in dollars? (a) $425,391.63 (b) $245,409.63 (c) $638,055.54 (d) $548,449.87 (e) None of the above

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

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

29. You are analyzing a potential 3-year investment in Switzerland. It will require an initial
investment of SFr 540,000.00 and is forecasted to yield cashflows of SFr 540,000.00 for
the next 3 years. As of today, the spot exchange rate is $0.6667 / SFr and the rates
of inflation expected to prevail for the next year in the US is 7% and in 8% in
Switzerland. Your estimated cost of capital in dollars is 16.7%. What is the NPV in
dollars?
(a) $425,391.63
(b) $245,409.63
(c) $638,055.54
(d) $548,449.87
(e) None of the above

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