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?
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
(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
(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.
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