It is 2024 and Carpet Baggers Inc. is proposing to construct a new bagging plant in a country in Europe. The two prime candidates ar Germany and Switzerland. The forecast cash flows from the proposed plants are as follows: C2 +16 C4 C6 IRR(%) CO C1 C3 C5 Germany (millions of euros) -79 +11 +16 +21 +21 +21 8.2 Switzerland (millions of Swiss francs) -139 +21 +31 +31 +36 +36 +36 9.1 The spot exchange rate for euros is USD1.4 = EUR1, while the rate for Swiss francs is CHF1.6 = USD1. The interest rate is 10% in the United States, 3% in Switzerland, and 5% in the euro countries. The financial manager has suggested that if the cash flows were stated in dollars, a return in excess of 12% would be acceptable. a. What is the dollar NPV of the German project? b. What is the dollar NPV of the Swiss project? c. Should the company go ahead with the German project, the Swiss project, or neither? (For requirements a & b, do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) a. NPV of German project b. NPV of Swiss project The company should choose million million C.

It is 2024 and Carpet Baggers Inc. is proposing to construct a new bagging plant in a country in Europe. The two prime candidates ar Germany and Switzerland. The forecast cash flows from the proposed plants are as follows: C2 +16 C4 C6 IRR(%) CO C1 C3 C5 Germany (millions of euros) -79 +11 +16 +21 +21 +21 8.2 Switzerland (millions of Swiss francs) -139 +21 +31 +31 +36 +36 +36 9.1 The spot exchange rate for euros is USD1.4 = EUR1, while the rate for Swiss francs is CHF1.6 = USD1. The interest rate is 10% in the United States, 3% in Switzerland, and 5% in the euro countries. The financial manager has suggested that if the cash flows were stated in dollars, a return in excess of 12% would be acceptable. a. What is the dollar NPV of the German project? b. What is the dollar NPV of the Swiss project? c. Should the company go ahead with the German project, the Swiss project, or neither? (For requirements a & b, do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) a. NPV of German project b. NPV of Swiss project The company should choose million million C.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 22P

See similar textbooks

Similar questions

(a) Jireh Housing Limited is a UK based property developer and is considering a project in Ghana which would require an outlay of £1.6 million at the outset. The money cash flows receivable from sales will depend on the specific inflation rate for Jireh property. This is anticipated to be 4% per annum. Cash outflows consist of four elements: labour, materials, overheads, and machinery maintenance. Labour costs are expected to increase by 5% per annum, materials by 3%, overheads by 4%, and machinery maintenance by 1%. Jireh’s requires a real rate of return of 16% on projects of this risk class, and anticipates the general rate of inflation to be 2% per annum over the 3-year life of the project. Annual cash flows in present (Time 0) prices are as follows: £m InflationSales 3.4 4%Labour 0.8…
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 SF5.5 per dollar (SF = Swiss francs). Net cash flows for the expansion project are estimated to be SF6 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 19 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.
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…
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.
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.
Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar denominated cash flows consist of initial investment of $2,000 and a cash inflow the year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10%. Currently, 1 US dollar will buy 0.91 Swiss franc. In addition, 1 year risk free securities in the US 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 of capital what would be the net present value and rate of return generated by this project?
A fin-tech firm is considering devising a new payment system. The initial cost for developing this system will be $20 million today. Once the system development is completed, in one year, the system will be sold to a major bank for $25 million. Assume that both the development of the system and the sale of the project for $25 million are certain. The firm can pay $20 million of investment entirely using its own cash. Or the firm can also raise funds to finance part of the investment by issuing a security that will pay investors $11 million in one year. Suppose the risk-free rate of interest is 10%. What is the NPV of this project if the fin-tech firm invests its own money and does not issue the new security? What is the NPV if the firm issues the new security? Briefly explain your answer by comparing the NPVs
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?
Micheal’s Machinery is a German multinational manufacturing company. Currently, Micheal’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 $2000 and a cash inflow the following year of $2400. Micheal’s estimates that its risk-adjusted cost of capital is 12%. Currently, 1 U.S. dollar will buy 0.7 Germany. In addition, 1-year risk-free securities in the United States are yielding 6.5%, while similar securities in Germany’s are yielding 4.5%. If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? Round your answers to two decimal places. What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places. If Micheal undertakes the project, what is the net present value and rate of return of…
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) =…
Carlson Inc. is evaluating a project in India that would require a $6.0 million after-tax investment today (t = 0). The after-tax cash flows would depend on whether India imposes a new property tax. There is a 50-50 chance that the tax will pass, in which case the project will produce after-tax cash flows of $1,100,000 at the end of each of the next 5 years. If the tax doesn't pass, the after-tax cash flows will be $2,100,000 for 5 years. The project has a WACC of 10.2%. The firm would have the option to abandon the project 1 year from now, and if it is abandoned, the firm would receive the expected $1.10 million cash flow at t = 1 and would also sell the property and receive $4.95 million after taxes at t = 1. If the project is abandoned, the company would receive no further cash inflows from it. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations. a. $1,124 b. $739 c. $705 d. $671 e. $34