15. Multinational capital budgeting International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,450 and a cash inflow the following year of $4,150. IMC estimates that its risk-adjusted cost of capital is 15%. Currently, 1 U.S. dollar will buy 6.8 Swedish kronas. In addition, 1-year risk-free securities in the United States are yielding 5%, while similar securities in Sweden are yielding 4%. If IMC undertakes the project, what is the net present value and rate of return of the project for IMC in home currency (Swedish Kronas)? O 1158.70 O 7645.42 O 7879.13 O 7809.61
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- How Country Risk Affects NPVMonk, Inc., isconsidering a capital budgeting project in Tunisia. Theproject requires an initial outlay of 1 million Tunisiandinars; the dinar is currently valued at $.70. In the firstand second years of operation, the project will generate 700,000 dinars in each year. After two years, Monk willterminate the project, and the expected salvage value is 300,000 dinars. Monk has assigned a discount rate of12 percent to this project. The following additionalinformation is available: There is currently no withholding tax on remit-tances to the United States, but there is a 20 percentchance that the Tunisian government will impose awithholding tax of 10 percent beginning next year. There is a 50 percent chance that the Tunisian gov-ernment will pay Monk 100,000 dinar after twoyears instead of the 300,000 dinars it expects. The value of the dinar is expected to remainunchanged over the next two years. a.Determine the net present value of the project ineach of the…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 $855,614. Capital Budgeting Analysis. A project in South Korea requires an initial investment of 2 billionSouth Korean won. The project is expected to generate net cash flows to the subsidiary of 3 billionand 4 billion won in the two years of operation, respectively. The project has no salvage value.The current value of the won is 1,100 won per U.S. dollar, and the value of the won is expected toremain constant over the next two years.a. What is the NPV of this project if the required rate of return is 13 percent?b. Repeat the question, except assume that the value of the won is expected to be 1,200 won perU.S. dollar after two years. Further assume that the funds are blocked and that the parentcompany will only be able to remit them back to the U.S. in two years. How does this affectthe NPV of the project?
- Suppose the multinational Milton Asset Extraction (MAX) is considering an overseas project in a country with substantial political risk. MAX predicts that the project will yield USD100 million each year for two years. The initial cost of the project is USD145 million. In any given year there is a 13% chance that the project will be expropriated by the host country’s government. The discount rate for the project is 8%. Calculate the expected net presentOne 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…The US based company is investing in a 2-year project in Europe. The initial investment is €10,000. The expected cash inflow in the year one is €6,000 and in the year two is €8,000. The risk-free rate in US is 3% and Europe 2%. If the spot rate is $1.25/€ and the required rate of return of the project is 14%, calculate the NPV of the project in dollars. (A) The NPV of the project in dollars is $1,773.62. (B) The NPV of the project in dollars is $1.704.32. (C) The NPV of the project in dollars is $1,418.90. (D)The NPV of the project in dollars is $1,989,74
- FOREIGN CAPITAL BUDGETING Sandrine Machinery is a Swiss multinationalmanufacturing company. Currently, Sandrine’s financial planners are consideringundertaking a 1-year project in the United States. The project’s expected dollardenominated cash flows consist of an initial investment of $2,000 and a cash inflow thefollowing year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10%.Currently, 1 U.S. dollar will buy 0.94 Swiss franc. In addition, 1-year risk-freesecurities in the United States are yielding 3%, while similar securities in Switzerlandare yielding 1.50%.a. If this project was instead undertaken by a similar U.S.-based company with the samerisk-adjusted cost of capital, what would be the net present value and rate of returngenerated by this project?b. What is the expected forward exchange rate 1 year from now?c. If Sandrine undertakes the project, what is the net present value and rate of return of theproject for Sandrine?The US based company is investing in a 2-year project in Europe. The initial investment is €10,000. The expected cash inflow in the year one is €6,000 and in the year two is €8,000. The risk-free rate in US is 3% and Europe 2%. If the spot rate is $1.25/€ and the required rate of return of the project is 14%, calculate the NPV of the project in dollars. (A) The NPV of the project in dollars is $1,773.62. (B) The NPV of the project in dollars is $1,704.32. (C) The NPV of the project in dollars is $1,418.90. (D) The NPV of the project in dollars is $1,989.74.Sarasota Inc. has a project that requires a $50,400 after-tax initial investment and produces these after-tax cash flows at each year- end: $18,700; $20,800; -$6,300; $41,800; $59,600; and $22,600. The appropriate domestic discount rate is 23.8 percent. The project is in another developing country, where extra risk is assumed to be 6.1 percent. Calculate the project's NPV. Should Sarasota Inc. accept or reject the project? (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 2 decimal places e.g. 971.25.) NPV $ Sarasota Inc. should the project.
- OpenDoor Cafe is considering opening a new food court in a major US city. The initial investment is expected to be $ 12,550,000. The projected cash flows are $4, 955,000 in years one and two, $2, 185,000 in year three, $2,715,000 in year four, and $3,040,000 on year five. What is this project's internal rate of return? Group of answer choices 6.70% 17.26 % 11.28% 15.02%How Country Risk Affects NPV Monk, Inc., is considering a capital budgeting project in Tunisia. The project requires an initial outlay of 1 million Tunisian dinars; the dinar is currently valued at $.70. In the first and second years of operation, the project will generate 700,000 dinars in each year. After two years, Monk will terminate the project, and the expected salvage value is 300,000 dinars. Monk has assigned a discount rate of12 percent to this project. The following additional information is available: There is currently no withholding tax on remittances to the United States, but there is a 20 percent chance that the Tunisian government will impose a withholding tax of 10 percent beginning next year. There is a 50 percent chance that the Tunisian government will pay Monk 100,000 dinar after two years instead of the 300,000 dinars it expects. The value of the dinar is expected to remain unchanged over the next two years. a. Determine the net present value of the project in…Monty Inc. has a project that requires a $51,300 after-tax initial investment and produces these after-tax cash flows at each year-end: $19,100; $21,100; -$6,600; $42,250; $60,200; and $23,200. The appropriate domestic discount rate is 24.1 percent. The project is in another developing country, where extra risk is assumed to be 6.7 percent. Calculate the project's NPV. Should Monty Inc. accept or reject the project? (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 2 decimal places e.g. 971.25.) NPV $ Monty Inc. should accept OR reject the project.