International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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You are International Business Manager at a UK based company. Considering high demand your company plans a full-scale expansion. Your company has identified USA and Europe as potential markets. You are requested to analyse both projects and advise. In considering such large project, you must work out the risk of each project, cost of capital and NPV. Allocate discount rate for each project accordingly and justify why you allocated this rate in your discussion. Discuss how international risks can be managed.
Projected cash flows in respective currencies:
Year Net Cash Flow – USD USA Net Cash Flow - EUR Europe0 -20 million -20 million 1 2 million 2 million2 4 million 3 million3 5 million 4 million4 6 million 8 million5 8 million 8 million
Instructions:a. Discuss viability of both projects in today’s global business context and allocate discount rate. b. How much investment is needed for each project and what is the NPV of each project? c.…
A company in country X with currency XSD is analyzing a potential investment in country Y with currency YSD. The best estimate is that YSD will be devalued in the international markets at an average of 3%. If the MARR of this company in country X is 23% what is the MARR that the company should use in country Y?
Question:2 , Which of the following factors are likely to decrease the weighted average cost of capital for a multinational corporation compared to a domestic firm?
Check all that apply:
Exposure to country risk
International diversification
Exposure to exchange rate risk
Access to international capital markets
Large size
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- A UK-based firm has identified three variables that impacts its cash flow, hence risk associated with its cashflow. The identified variables are interest rates (INT), the euro/sterling exchange rate (EXCH), and the price of gas (GAS). The relationship between the variables can be expressed as follows: Change in cash flow = ₔ+ ß1 INT + ß2 EXCH + ß3 GAS + ҙ (a) Explain the relationship as expressed in the multiple regression analysis. (b) Identify the dependent variable and independent variables and type of risks associated to each variable and how to manage these risks. (c) How do you describe the relationship between the independent variables and the dependent variable. (d) Identify and briefly explain the three commonly used approaches to quantifying financial risks.arrow_forwardIn this assignment, you have been brought in to assess whether Nucor should be the first adopter of a new technology. This requires a $340 million investment in a commercially unproven technology. If successful, Nucor can expand into the flat sheet segment that was previously a segment where only the large integrated steelmakers competed. This assignment requires that you combine qualitative information (e.g., industry and firm insights) with quantitative analysis in Excel (discounted cash flow analysis). After you read the case, answer both questions: background analysis and cash flow analysis. For cash flow analysis, you need to do calculations using Excel file attached in the assignment on Blackboard. Once you finished your calculations using Excel file, you can answer your second part of the assignment. Background Analysis (20 points) Industry: Of the three groups of steelmakers, what are some of the differences between integrated steelmakers and minimill steelmakers? Nucor: What…arrow_forwardWhich of the following factors is not expected to generally have a favorable impact on the firm's cost of capital? Group of answer choices easy access to international capital markets. high degree of international diversification. high exposure to exchange rate fluctuations. all of thesearrow_forward
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