You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 16 million. The cash flows from the project would be SF 4.5 million per year for the next five years. The dollar required return is 13 percent per year, and the current exchange rate is SF 1.10. The going rate on Eurodollars is 4 percent per year. It is 2 percent per year on Swiss francs. a.Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.)b-1.What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b-2.What is the NPV of the project in Swiss francs? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.)b-3.What is the NPV in dollars if you convert the franc NPV to dollars?

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Answered: You are evaluating a proposed expansion…

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 13P

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Question

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 16 million. The cash flows from the project would be SF 4.5 million per year for the next five years. The dollar required return is 13 percent per year, and the current exchange rate is SF 1.10. The going rate on Eurodollars is 4 percent per year. It is 2 percent per year on Swiss francs.

a.	Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.)
b-1.	What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b-2.	What is the NPV of the project in Swiss francs? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.)
b-3.	What is the NPV in dollars if you convert the franc NPV to dollars?