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The company plans a net investment of $7 million in the project. The current spot exchange rate is SF5.25 per dollar (SF = Swiss francs). Net cash flows for the expansion project are estimated to be SF5 million for 12 years and nothing thereafter. Based on its analysis of current conditions in Swiss capital markets, International Foods has determined that the applicable cost of capital for the project is 11 percent. Calculate the
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- International Foods Corporation, a U.S.-‐based food company, is considering expanding its soup-‐processing operations in Switzerland. The company plans a net investment of $8 million in the project. The current spot exchange rate is SF6.25 per dollar (SF = Swiss francs). Net cash flows for the expansion project are estimated to be SF5 million for 10years and nothing thereafter. Based on its analysis of current conditions in Swiss capital markets, International Foods has determined that the applicable cost of capital for the project is 16 percent. Calculate the net present value of the proposed expansion project.International Foods Corporation, a U.S.-based food company, is considering expanding its soup-processing operations in Switzerland. The company plans a net investment of $7 million in the project. The current spot exchange rate is SF5.25 per dollar (SF = Swiss francs). Net cash flows for the expansion project are estimated to be SF5 million for 12 years and nothing thereafter. Based on its analysis of current conditions in Swiss capital markets, International Foods has determined that the applicable cost of capital for the project is 11 percent. Calculate the net present value of the proposed expansion project. Use Table IV to answer the questions below. Enter your answer in millions. For example, an answer of $1.20 million should be entered as 1.20, not 1,200,000. Round your answer to two decimal places. $You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 16 million. The cash flows from the project would be SF 4.5 million per year for the next five years. The dollar required return is 13 percent per year, and the current exchange rate is SF 1.10. The going rate on Eurodollars is 4 percent per year. It is 2 percent per year on Swiss francs. 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 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 dollars, not millions, rounded to 2 decimal places, e.g.,…
- Zimmer, a manufacturer of modular rooms, plans to expand its operations in Landshut, Germany. The expansion will cost $14.5 million and is expected to generate annual net cash flows of €2.15 million for a period of 12 years and then the operation will be sold for €1 million (net of taxes). The cost of capital for the project is 14%. Using a spot exchange rate of $1.25/€ as the forecast FX rate for the euro for the term of the project, compute the NPV of this expansion project.Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR13,600. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 4,280, 5,080, 6,070, 7,060, and 7,900. The parent firm’s cost of capital in dollars is 9.5 percent. Long-run inflation is forecasted to be 3 percent per annum in the United States and 7 percent in South Africa. The current spot foreign exchange rate is ZAR/USD = 3.75. a. Calculating the NPV in ZAR using the ZAR equivalent cost of capital according to the Fisher effect and then converting to USD at the current spot rate. b. Converting all cash flows from ZAR to USD at purchasing power parity forecasted exchange rates and then calculating the NPV at the dollar cost of capital. c. Are the two dollar NPVs different or the same? multiple choice Different Same d. What is the NPV in dollars if the actual pattern of ZAR/USD exchange…Delta Company, a U.S. MNC, is contemplating making a foreign capital expenditure in South Africa. The initial cost of the project is ZAR11,200. The annual cash flows over the five-year economic life of the project in ZAR are estimated to be 3,360, 4,360, 5,350, 6,340, and 7,300. The parent firm’s cost of capital in dollars is 9.5 percent. Long-run inflation is forecasted to be 3 percent per annum in the United States and 7 percent in South Africa. The current spot foreign exchange rate is ZAR/USD = 3.75. Calculating the NPV in ZAR using the ZAR equivalent cost of capital according to the Fisher effect and then converting to USD at the current spot rate. Converting all cash flows from ZAR to USD at purchasing power parity forecasted exchange rates and then calculating the NPV at the dollar cost of capital. Are the two dollar NPVs different or the same? multiple choice Different Same 4.What is the NPV in dollars if the actual pattern of ZAR/USD exchange rates is: S(0) = 3.75, S(1) =…
- An Australian company, GHI Ltd, is examining a potential investment in England. The project is expected to cost GBP 100 million and have a salvage value of GBP 30 million at the end of its 4-year life. Revenues generated from the project are based on estimated annual sales of 15 million units at a price of £12 each. Variable costs are expected to be £4 per unit and fixed costs are expected to be GBP 12 million per year. The current exchange rate of AUD = 0.58 GBP and the AUD is expected to depreciate at 5% pa over the life of the project. The required return is 12% in AUD. Calculate the NPV of the project and determine whether it should be undertaken.Sandusky Machine Services is a Dutch multinational manufacturing company whose financial team is considering signing a 1 year project in the USA. The project's expected dollar-denominated cash flows consist of an initial investment of $2000 and a cash inflow the following year of $2400. Sandusky estimates that its risk adjusted cost of capital is 10%. Currently, $1 will buy 0.96 Swiss franc. Additionally, 1 year risk-free securities in the USA are yielding 3%, while similar securities in Switzerland are yielding 1.50%. (a). If this project was instead undertaken by a similar U.S based company with the same risk-adjusted cost capital, what would be the net present value and rate of return generated by this project? (b). What is the expected forward exchange rate 1 year from now? (c). If Sandusky undertakes the project, what is the net present value and rate of return of the project for Sandusky? Note*** Please show all formulas, explanations and workings in Excel. Thank you.Sandusky Machine Services is a Dutch multinational manufacturing company whose financial team is considering signing a 1 year project in the USA. The project's expected dollar-denominated cash flows consist of an initial investment of $2000 and a cash inflow the following year of $2400. Sandusky estimates that its risk adjusted cost of capital is 10%. Currently, $1 will buy 0.96 Swiss franc. Additionally, 1 year risk-free securities in the USA are yielding 3%, while similar securities in Switzerland are yielding 1.50%. (a). If this project was instead undertaken by a similar U.S based company with the same risk-adjusted cost capital, what would be the net present value and rate of return generated by this project? (b). What is the expected forward exchange rate 1 year from now? (c). If Sandusky undertakes the project, what is the net present value and rate of return of the project for Sandusky? Note*** Please show all formulas, explanations and workings. Thank you.
- Sandrine Machinery is a Swiss multinational manufacturingcompany. Currently, Sandrine’s financial planners are considering undertaking a 1-yearproject in the United States. The project’s expected dollar-denominated cash flows consistof an initial investment of $2,000 and a cash inflow the following year of $2,400. Sandrineestimates that its risk-adjusted cost of capital is 10%. Currently, 1 U.S. dollar will buy0.96 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding3%, while similar securities in Switzerland are 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 ofthe project for Sandrine?A project costs Can$700,000 and has expected annual cash inflows of Can$300,000 for Years 1 through 3. The Canadian discount rate is 10 percent. The current spot rate is: $1 = Can$1.07. What is the NPV of this project in U.S. dollars using the foreign currency approach?Company X has an investment opportunity in Europe. The project costs €30,000,000 and is expected to produce cash flows of €21,000,000in Year 1, €31,000,000 in Year 2 and €22,000,000 in Year 3. The current exchange rate is €1.25% and the current risk free rate in United States is 5% compared to that of Europe of 3.5%. The appropriate discount rate for the project is estimated to be 13% 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 €6,250,000. a. What is the NPV of the project? *Use the Home Currency Approach to calculate the NPV.