You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 13.8 million. The cash flows from the project would be SF 4.1 million per year for the next five years. The dollar required return is 12 percent per year, and the current exchange rate is SF 1.12. The going rate on Eurodollars is 5 percent per year. It is 4 percent per year on Euroswiss. a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. What is the NPV of the project in Swiss francs? (Do not round intermediate calculations and enter your answer in francs, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.)
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 13.8 million. The cash flows from the project would be SF 4.1 million per year for the next five years. The dollar required return is 12 percent per year, and the current exchange rate is SF 1.12. The going rate on Eurodollars is 5 percent per year. It is 4 percent per year on Euroswiss. a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.) b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. What is the NPV of the project in Swiss francs? (Do not round intermediate calculations and enter your answer in francs, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.)
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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Transcribed Image Text:You are evaluating a proposed expansion of an existing subsidiary located in
Switzerland. The cost of the expansion would be SF 13.8 million. The cash flows from the
project would be SF 4.1 million per year for the next five years. The dollar required return
is 12 percent per year, and the current exchange rate is SF 1.12. The going rate on
Eurodollars is 5 percent per year. It is 4 percent per year on Euroswiss.
a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not
round intermediate calculations and enter your answer in dollars, not in millions,
rounded to 2 decimal places, e.g., 1,234,567.89.)
b-1. What is the required return on franc flows? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b-2. What is the NPV of the project in Swiss francs? (Do not round intermediate
enter your answer in francs, not in millions, rounded to 2
calculations and
decimal places, e.g., 1,234,567.89.)
b-3. What is the NPV in dollars if you convert the franc NPV to dollars? (Do not round
intermediate calculations and enter your answer in dollars, not in millions,
rounded to 2 decimal places, e.g., 1,234,567.89.)
a. NPV
b-1. Return on franc flows
%
b-2. NPV SF
b-3. NPV
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