# Accounting for Country Risk of a Project Slidell Co. (a U.S. firm) considers a foreign project in which it expects to receive 10 million euros at the end of this year. It plans to hedge receivables of 10 million euros with a forward contract. Today, the spot rate of the euro is \$1.20, the one-year forward rate of the euro is presently \$1.24, and the expected spot rate of the euro in one year is \$1.19. The initial outlay is \$7 million. Slidell has a required return of 18 percent. There is a 20 percent chance that political problems will cause a reduction in foreign business, such that Slidell would receive only 4 million euros at the end of one year. Determine the expected value of the net present value of this project.

FindFind

### International Financial Management

14th Edition
Publisher: Cengage
ISBN: 9780357130698
FindFind

### International Financial Management

14th Edition
Publisher: Cengage
ISBN: 9780357130698

#### Solutions

Chapter 16, Problem 25QA
Textbook Problem

## Accounting for Country Risk of a Project Slidell Co. (a U.S. firm) considers a foreign project in which it expects to receive 10 million euros at the end of this year. It plans to hedge receivables of 10 million euros with a forward contract. Today, the spot rate of the euro is \$1.20, the one-year forward rate of the euro is presently \$1.24, and the expected spot rate of the euro in one year is \$1.19. The initial outlay is \$7 million. Slidell has a required return of 18 percent. There is a 20 percent chance that political problems will cause a reduction in foreign business, such that Slidell would receive only 4 million euros at the end of one year. Determine the expected value of the net present value of this project.

This textbook solution is under construction.

## Expert Solution

### Want to see the full answer?

Check out a sample textbook solution.

### Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.