International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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A company requires a 26% internal rate of return (before taxes) in U.S. dollars on project investments in foreign countries. Solve, a. If the currency of Country A is projected to average an 8% annual devaluation relative to the dollar, what rate of return (in terms of the currency there) would be required for a project? b. If the dollar is projected to devaluate 6% annually relative to the currency of Country B, what rate of return (in terms of the currency there) would be required for a project?
Assume you are considering a USD 100,000 investment for which the future cash flows depend on the state of the economy. What are the expected cash flow and rate of return of the investment considering the three probability of the state of the economy?
State of the economy Probability of the states CF from the investment % returns (CF / Investment cost)
Economic recession 50% USD 10,000 10% (10,000 / 100,000)
Moderate economic recession 40% USD 12,000 12% (12,000 / 100,000)
Strong economic recession 10% USD 14,000…
A developing country has determined that each additional $1 billion of investment in capital goods adds
0.3
percentage point to its long-run average annual rate of growth of per capita real GDP.
Domestic entrepreneurs recently began to seek official approval to open a range of businesses employing capital resources valued at
$27
billion. If the entrepreneurs undertake these investments, and assuming that other things are equal, calculate the nation's long-run average annual rate of growth of per capita real GDP up to a fraction of a percentage point.
nothing
percent. (Round your answer to one decimal place.)
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- Scenarios: You work in the macroeconomic research department of an investment bank. Based on your modelling of the economy, you think that in the next few months US GDP will evolve according to three basic scenarios: Scenario A: GDP will rise 3%. This will send the S&P ETF to 414. Scenario B: GDP will stagnate. S&P ETF will stay at 407. Scenario C: GDP will fall 2%. This will send the S&P ETF to 400. Compute the payoff and net payoff of a bear spread strategy built with put options in the three scenarios above. The put options should have strikes 405 and 409 and mature in February. Draw the profile of the bear spread strategy. Use the data in Table 2. Please show your calculations. Discuss your result. You also observe the following market for European Call and Put options on the S&P 500 ETF: Today: 10th January 2023 Spot index level: 407 LOOK AT ATTACHED IMAGEarrow_forwardAn investment of $200,000 is required to expand a certain production facility in a manufacturing company. The firm estimates that labor costs will be $150,000 for the first year but will increase at the rate of 8% over the previous year’s expenditure. Material costs, on the other hand, will be $400,000 for the first year but will increase at the rate of 10% per year due to inflation. If the firm’s inflation-free interest rate (i′) is 20% and the average general inflation rate (f) is expected to be 15% over the next 5 years, determine the total present equivalent operating expenses (with no tax consideration) for the project. Please show step by step answer.arrow_forwardScenarios: You work in the macroeconomic research department of an investment bank. Based on your modelling of the economy, you think that in the next few months US GDP will evolve according to three basic scenarios: Scenario A: GDP will rise 3%. This will send the S&P ETF to 414. Scenario B: GDP will stagnate. S&P ETF will stay at 407. Scenario C: GDP will fall 2%. This will send the S&P ETF to 400. Compute the payoff and net payoff in the three scenarios above of a strategy made of two legs: Leg 1: a long straddle with maturity in February and strike 407. Leg 2: a short straddle with maturity in March and strike 407. Use the data in Table 2. You also observe the following market for European Call and Put options on the S&P 500 ETF: Today :10th January 2023 Spot index level: 407 see attached image Part 2:arrow_forward
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