International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Quantitative Problem: International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,100 and a cash inflow the following year of $3,700. IMC estimates that its risk-adjusted cost of capital is 17%. Currently, 1 U.S. dollar will buy 9.3 Swedish kronas. In addition, 1-year risk-free securities in the United States are yielding 4%, while similar securities in Sweden are yielding 3%.
a. If the interest parity holds, what is the forward exchange rate of Swedish kronas per U.S. dollar? Do not round intermediate calculations. Round your answer to four decimal places.
Swedish kronas per U.S. dollar
b. If IMC undertakes the project, what is the net present value and rate of return of the project for IMC in home currency? Do not round intermediate calculations. Round your…
Manitowoc Crane (US) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 18,000 units per year at the yuan equivalent of $23,000 each. The chinese yuan (renminbi) has been trading at Yuan 7.80/$, but a Hong Kong advisory service predicts the renminbi will drop in value next week to Yuan 8.50/$ after which it will remain unchanged for at least a decade. Accepting this forecast as given, Manitowoc Crane faces a pricing decision in the face of the impending devaluation. It may either (1) maintain the same yuan price and in effect sell for fewer dollars, in which case Chinese volume will not change or (2) maintain the same dollar price, raise the yuan price in China to offset the devaluation and experience a 10% drop in unit volume. Direct costs are 75% of the US salesd price.
If Manitowoc Crane maintains the same yuan price and same unit volume, what will be the firm's gross profits?_________
If Manitowoc Crane maintains the same dollar price, raises…
Evaluating projects with unequal lives
Tasty Tuna Corporation is a U.S. firm that wants to expand its business internationally. It is considering potential projects in both Germany and Thailand, and the German project is expected to take six years, whereas the Thai project is expected to take only three years. However, the firm plans to repeat the Thai project after three years. These projects are mutually exclusive, so Tasty Tuna Corporation’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:
–$800,000
Year 1:
$380,000
Year 2:
$400,000
Year 3:
$420,000
Year 4:
$375,000
Year 5:
$110,000
Year 6:
$85,000
Project:
Thai
Year 0:
–$475,000
Year 1:
$225,000
Year 2:
$235,000
Year 3:
$255,000
If Tasty Tuna Corporation’s cost of capital is 10%, what is the NPV of the German project?
a.)$535,797
b.)$563,997
c.)$507,597
d.)$451,198…
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