Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 31, Problem 4P
Summary Introduction
To determine: The
Introduction: The present value is an amount that an individual makes as an investment at present in order to generate the cash flow in the future. The present value of the cash flows can be computed by adding the cash flow of every stream.
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You are analyzing a very low-risk project with an initial cost of €120000. The project is expected to return €40000 the first year, €50000 the second year and €60000 the third year. The current spot rate is €.54. The nominal return relevant to the project is 4 percent in the U.K. and 3 percent in the U.S. using the home currency approach, what is the net present value of this project in U.S dollars?
Lakonishok Equipment has an investment opportunity in Europe. The project costs €12
million and is expected to produce cash flows of €2 million in Year 1, €2.4 million in Year
2, and €3.5 million in Year 3. The current spot exchange rate is 1.35€/$ and the current
risk-free rate in the United States is 2.8 percent, compared to that in Europe of 2
percent. The appropriate discount rate for the project is estimated to be 14 percent, the
U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of
three years for an estimated €9 million. Use the exact form of interest rate parity in
calculating the expected spot rates. What is the NPV of the project in U.S. dollars? (Do
not round intermediate calculations and enter your answer in dollars, not in millions,
rounded to two decimal places, e.g., 1,234,567.89)
NPV
I
Chapter 31 Solutions
Corporate Finance
Ch. 31.1 - Prob. 1CCCh. 31.1 - What implication do internationally integrated...Ch. 31.2 - Prob. 1CCCh. 31.2 - When do these two methods give the same NPV of the...Ch. 31.3 - Prob. 1CCCh. 31.3 - Prob. 2CCCh. 31.4 - Prob. 1CCCh. 31.4 - Prob. 2CCCh. 31.5 - What conditions cause the cash flows of a foreign...Ch. 31.5 - Prob. 2CC
Ch. 31 - You are a U.S. investor who is trying to calculate...Ch. 31 - Prob. 2PCh. 31 - Etemadi Amalgamated, a U.S. manufacturing firm, is...Ch. 31 - Prob. 4PCh. 31 - You work for a U.S. firm, and your boss has asked...Ch. 31 - Prob. 6PCh. 31 - Prob. 7PCh. 31 - Prob. 8PCh. 31 - Prob. 9PCh. 31 - Prob. 10PCh. 31 - Prob. 11PCh. 31 - Prob. 12PCh. 31 - Prob. 13P
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