Toyota corporation is a Japanese automotive manufacturing company. The CFO is considering opening their new factory to assemble trucks in North Carolina, USA. The real discount rate required for the project is 12%. The inflation rate in Japan is 2%, and the inflation rate in the United States is 4%. Compare the nominal discount rates for the two project options, the first option is doing the project as an investment in US dollar, and the second option in their local currency the Japanese Yen.

Toyota corporation is a Japanese automotive manufacturing company. The CFO is considering opening their new factory to assemble trucks in North Carolina, USA. The real discount rate required for the project is 12%. The inflation rate in Japan is 2%, and the inflation rate in the United States is 4%. Compare the nominal discount rates for the two project options, the first option is doing the project as an investment in US dollar, and the second option in their local currency the Japanese Yen.

Intermediate Financial Management (MindTap Course List)

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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Toyota corporation is a Japanese automotive manufacturing company. The CFO is considering opening their new factory to assemble trucks in North Carolina, USA. The real discount rate required for the project is 12%. The inflation rate in Japan is 2%, and the inflation rate in the United States is 4%. 1.)Compare the nominal discount rates for the two project options, the first option is doing the project as an investment in US dollar, and the second option in their local currency the Japanese Yen. 2.) Evaluate and choose the best option, include in your answer the significance of inflation rates in relation to Foreign Investment of multinational corporations.
Solitaire corporation is a swiss multinational manufacturing company. Currently their financial planners are considering undertaking a one-year project in the United States.The real discount rate required for the project is 12%. The inflation rate in Switzerland is 2% , and the inflation rate in the United States is 4%. a) Compare the nominal discount rates for the two projects options,the first option is doing the project investment in US dollars , and the second option in their local currency the Swiss Franc? b) Evaluate,and choose the best option. Include in your answer the significance of inflation rates in relation to Foreign Investment of multinational corporations.
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MSN Bank expects that the New Zealand dollar (NZD) will depreciate against the U.S. dollar (USD) from its spot rate of $.44 to $.41 in 90 days. The following interbank lending and borrowing rates exist: Annual borrowing rate Annual lending rate USD 7.20% 7.00% NZD 10.00% 9.00% MSN Bank considers borrowing 2 million New Zealand dollars in the interbank market and investing the funds in U.S. dollars for 90 days. Estimate the profits (or losses) that could be earned from this strategy. Should MSN Bank pursue this strategy? Show necessary calculations and discuss (50 words excluding calculations).
MSN Bank expects that the New Zealand dollar (NZD) will depreciate against the U.S. dollar (USD) from its spot rate of $.44 to $.41 in 90 days. The following interbank lending and borrowing rates exist: Annual borrowing rate Annual lending rate USD 7.20% 7.00% NZD 10.00% 9.00% MSN Bank considers borrowing 2 million New Zealand dollars in the interbank market and investing the funds in U.S. dollars for 90 days. Estimate the profits (or losses) that could be earned from this strategy. Should MSN Bank pursue this strategy? Show necessary calculations and discuss.