EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202778
Author: DeMarzo
Publisher: PEARSON CUSTOM PUB.(CONSIGNMENT)
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 3, Problem 7P
You have an investment opportunity in Japan. It requires an investment of $1 million today and will produce a cash flow of ¥114 million in one year with no risk. Suppose the risk-free interest rate in the United States is 4%, the risk-free interest rate in Japan is 2%, and the current competitive exchange rate is ¥110 per $1. What is the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose that the interest rate on a US dollar deposit is 3% and the interest rate on a Japanese yen deposit is 1%. Today’s exchange rate is $1/¥ and the expected rate one year in the future is $1.2/¥, so $100 today can be exchanges for ¥100. Which currency deposit yield a higher expected rate of return (which currency investors should be willing to hold)? Why?
You have an investment opportunity in Japan. It requires an investment of $1.06 million today and will produce a cash flow of ¥109 million in one year with no risk. Suppose the risk-free interest rate in the United States is 3.8%, the risk-free interest rate in Japan is 2.5%, and the current competitive exchange rate is ¥110 per
dollar. What is the NPV of this investment? Is it a good opportunity?
What is the NPV of this investment?
The NPV of this investment is S. (Round to the nearest dollar)
You want to invest in a riskless project in Australia. The project has an initial cost of AUD3.86 million and is expected to produce cash inflows of AUD 2 million a year for four years. The project will be worthless after four years. The expected inflation rate in Australia is 3.2 percent while it is 2.8 percent in the U.S. A risk-free security is paying 4.1 percent in the U.S. The current spot rate is AUD7.7274. What is the net present value of this project in Australian Dollar if the international Fisher effect applies?
Chapter 3 Solutions
EBK CORPORATE FINANCE
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - An American Depositary Receipt (ADR) is security...Ch. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 1. Your company is exporting product to Peru. Your best guess is that, over the coming year, you will have sales equal to 55 million Peruvian Soles (their currency). However, those sales will depend a lot on the results of the upcoming election in Peru and could, in reality range from a value of 40 million to 75 million soles. If you decide to enter a hedge for 55 million soles, what are the risks from doing so? Are there ways to reduce that risk? At what cost?arrow_forward"A French company is considering a project in US. The project will cost $100M. The cash flows are expected to be $30M per year for 5 years. The current spot exchange rate is $1.20/. The risk - free rate in the US is 1%, and the risk - free rate in Europe is 2%. The dollar required return on the project is 12%. Find the NPV in foreign currency using foreign currency approach. The answers below are in millions." -37.281 161.634 8.143 1.631 82.136arrow_forwardA project in Japan will generate 130M Yen per year forever. Sunrise Corp. is a US firm that is considering investing in that project in Japan. The current risk-free rate in US is 7% and the risk-free rate in Japan is 5%. The approproate cost of capital for a US-based project of similar risk is 15.8%. What is the cost of capital if you are using the foreign currency approach? 17.8% 8.8% 20.8%arrow_forward
- Your company is looking at a new project in Mexico. The project will cost 9 million pesos. The cash flows are expected to be 2.25 million pesos per year for 5 years. The current spot exchange rate is 9.08 pesos per Canadian dollar. The risk-free rate in the Canada is 4% and the risk-free rate in Mexico 8%. The dollar required return is 15%. Should the company make the investment?arrow_forward1. A one-year Japanese security is currently yielding 5%. Furthermore, it is expected that the exchange rate between the dollar and the yen is changing from 98 yen to the dollar, to 95 yen to the dollar over the next year. To invest in U.S. security rather than Japanese security, you would need a return at least equal to what value?arrow_forwardSuppose that you are the CFO of Google with an extra U.S. $20 Million to invest for one year. You are considering the purchase of U.S. T-bills that yield 4% per year. The spot exchange rate is $1.00 = €0.90, and the one-year forward rate is $1.00 = €0.95 . What must the interest rate in the Eurozone (on an investment of comparable risk) be before you are willing to consider investing there instead of the US? a. 9.78% b. 1.56% c. 4.00% d. 5.56%arrow_forward
- Suppose you are a U.S. investor who is planning to invest $100,000 in China. Your Chinese investment gains 5%. If the exchange rate moves from 7.12 Yuan per dollar to 7.14 Yuan per dollar over the period, what is your total return on this investment?arrow_forwardA consumer product firm is considering making a major investment in China. The investment is expected to cost $5 billion, and the present value (PV) of the expected cash flows on the investment is only $3.5 billion. However, the firm believes that there are substantial expansion opportunities in China. Would that justify investing the $5 billion? Why or why not?arrow_forwardWithout Using Excel: ABC Company wants to possibly expand its plant in Europe. The current spot exchange rate is for Euro is €0.83. The initial investment is €2.1, with projected cash flows for three years at €950,000. The discount rate is 10%. The risk-free rate in the US is 5 percent and the risk-free rate in Europe is 7 percent. Calculate the NPV of the project into US Dollars, rounding to the nearest cent, format as "XXX,XXX.XX"arrow_forward
- There is a project in DreamLand that an American-based company would like to invest in. The project would require DDD735,000 as initial investment. It is also estimated to generate cash inflows equal to DDD351,000 a year for the next 4 years. After that, the project will be worthless. The current spot exchange rate equals DDD1 = $3.4567. The risk-free rate in DreamLand is 3%, and it is 5% in the U.S.A. The applicable rate of return for projects inarrow_forwardA 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 IRR of this project in country Y is 21% what is the IRR of this project in country X?arrow_forwardA Canadian firm is evaluating an investment in Indonesia. The project costs 580 billion Indonesian rupiah and it is expected to produce an income of 280 billion Indonesian ruplah a year in real terms for each of the next 3 years. The expected inflation rate in Indonesia is 11% per year and the firm estimates that an appropriate discount rate for the project would be about 5% above the risk-free rate of interest. Calculate the net present value of the project in dollars. Assume a spot exchange rate of $.000112/Rupiah. The interest rate is about 15% in Indonesia and 4% in Canada (Round your answer to 2 decimal places. Enter your answer in millions of Canadian dollers.) NPV of the projectarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Foreign Exchange Risks; Author: Kaplan UK;https://www.youtube.com/watch?v=ne1dYl3WifM;License: Standard Youtube License