Discuss qualitatively what is the proper cost of capital to be considered by the Brazilian investors in France in the example above. Be precise on the assumptions you make on the Brazilian investors and the French project.

Algebra and Trigonometry (6th Edition)
6th Edition
ISBN:9780134463216
Author:Robert F. Blitzer
Publisher:Robert F. Blitzer
ChapterP: Prerequisites: Fundamental Concepts Of Algebra
Section: Chapter Questions
Problem 1MCCP: In Exercises 1-25, simplify the given expression or perform the indicated operation (and simplify,...
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The Brazilian meat company SoCarnes wishes to start production in France. This new production is associated to a project with the following forecasted cash flows in euros (see table 1 below).

 

The cost of capital in France is 10%, and the spot exchange rate is 6.2 BR$ / 1€ (1 euro buys 6.2 Brazilian reals). The risk-free rate for Brazil is 7% and the risk-free rate for France is 3%.

 

 

Table 1

 

Year

0

1

2

3

4

5

CF (in euros)

-1000

290

320

370

400

400

 

  1. Discuss qualitatively what is the proper cost of capital to be considered by the Brazilian investors in France in the example above. Be precise on the assumptions you make on the Brazilian investors and the French project.
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