What are the expected spot Canadian/Bruneian exchange rates over the next six years? Is the Canadian dollar expected to depreciate or appreciate against the Bruneian dollar during this project period? Is this prediction favourable to Blooming Blueberries’ project?
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- What are the expected spot Canadian/Bruneian exchange rates over the next six years? Is the Canadian dollar expected to
depreciate or appreciate against the Bruneian dollar during this project period? Is this prediction favourable to Blooming Blueberries’ project?
2)What is the
3)What other exchange rate risk exposure should the company consider before investing in the project? Explain these risk exposures to Larry.
4)What other risk factors (besides exchange rate risk) should the company consider before investing in the project? Search The Straits Times (from Singapore) for news on Brunei, and identify one major issue that the company may face, other than exchange rate risk, that could sway Larry one way or the other regarding investing in Brunei.
5-If the company is able to borrow the 1 million Brunei dollars capital from a local bank in Brunei at 10%, will it make a difference whether it borrows the money in Canada or in Brunei? Barry says no, according to the Uncovered Interest Parity and Generalized Fisher Effect relationships between exchange rates and interest rates. Explain why this is so.
6-Based on all the above analyses, should the company invest in this distribution centre in Brunei?
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What is the logic behind the IRR method? According to IRR, which project(s) should be accepted if they are independent? Mutually exclusive? 4. Would the projects IRRs change if the WACC changed? e. 1. Draw NPV profiles for Projects L and S. At what discount rate do the profiles cross? 2. Look at your NPV profile graph without referring to the actual NPVs and IRRs. Which project(s) should be accepted if they are independent? Mutually exclusive? Explain. Are your answers correct at any WACC less than 23.6%? f. 1. What is the underlying cause of ranking conflicts between NPV and IRR? 2. What is the reinvestment rate assumption, and how does it affect the NPV versus IRR conflict? 3. Which method is best? Why? g. 1. Define the term modified IRR (MIRR). Find the MIRKs for Projects L and S. 2. What are the MIRRs advantages and disadvantages as compared to the NPV? h. 1. What is the payback period? Find the paybacks for Projects L and S. 2. What is the rationale for the payback method? According to the payback criterion, which project(s) should be accepted if the firms maximum acceptable payback is 2 years, if Projects L and S are independent? If Projects L and S are mutually exclusive? 3. What is the difference between the regular and discounted payback methods? 4. What are the two main disadvantages of discounted payback? Is the payback method useful in capital budgeting decisions? Explain. i. As a separate project (Project P), the firm is considering sponsoring a pavilion at the upcoming Worlds Fair. The pavilion would cost 800,000, and it is expected to result in 5 million of incremental cash inflows during its 1 year of operation. However, it would then take another year, and 5 million of costs, to demolish the site and return it to its original condition. Thus, Project Ps expected cash flows (in millions of dollars) look like this: The project is estimated to be of average risk, so its WACC is 10%. 1. What is Project Ps NPV? What is its IRR? Its MIRR? 2. 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