International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Savory Seafood Inc. is a U.S. firm that wants to expand its business internationally. It is considering potential projects in both Germany and Mexico, and the German project is expected to take six years, whereas the Mexican project is expected to take only three years. However, the firm plans to repeat the Mexican project after three years. These projects are mutually exclusive, so Savory Seafood Inc.’s CFO plans to use the replacement chain approach to analyze both projects. The expected cash flows for both projects follow:
Project:
German
Year 0:
–$1,120,000
Year 1:
$370,000
Year 2:
$390,000
Year 3:
$420,000
Year 4:
$330,000
Year 5:
$220,000
Year 6:
$95,000
Project:
Mexican
Year 0:
–$520,000
Year 1:
$275,000
Year 2:
$280,000
Year 3:
$295,000
If Savory Seafood Inc.’s cost of capital is 11%, what is the NPV of the German project?
Assuming that the Mexican project’s cost and annual cash inflows do not change when the project is…
International Foods Corporation, a U.S.-‐based food company, is considering expanding its soup-‐processing operations in Switzerland. The company plans a net investment of $8 million in the project. The current spot exchange rate is SF6.25 per dollar (SF = Swiss francs). Net cash flows for the expansion project are estimated to be SF5 million for 10years and nothing thereafter. Based on its analysis of current conditions in Swiss capital markets, International Foods has determined that the applicable cost of capital for the project is 16 percent. Calculate the net present value of the proposed expansion project.
International Foods Corporation, a U.S.-based food company, is considering expanding its soup-processing operations in Switzerland. The company plans a net investment of $6 million in the project. The current spot exchange rate is SF6.6 per dollar (SF = Swiss francs). Net cash flows for the expansion project are estimated to be SF3 million for 13 years and nothing thereafter. Based on its analysis of current conditions in Swiss capital markets, International Foods has determined that the applicable cost of capital for the project is 19 percent. Calculate the net present value of the proposed expansion project. Use Table IV to answer the questions below. Enter your answer in millions. For example, an answer of $1.20 million should be entered as 1.20, not 1,200,000. Round your answer to two decimal places.
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