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

The difference between the current value of cash inflows and outflow of cash over a period of time…

Answered: One of the important components of…

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 14P

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Question

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.