Question

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 21 million. The cash flows from the project would be SF 5.8 million per year for the next five years. The dollar required return is 12 percent per year, and the current exchange rate is SF 1.10. The going rate on Eurodollars is 6 percent per year. It is 5 percent per year on Euroswiss. Use the approximate form of interest rate parity in calculating the expected spot rates.

Answer 1

Answer:

The completed question is this

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF21 million. The cash flows from the project would be SF5.5 million per year for the next five years. The dollar required return is 12 percent per year, and the current exchange rate is SF1.07. The going rate on Eurodollars is 6 percent per year. It is 3 percent per year on Swiss francs. a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not in millions, e.g., 1,234,567.) NPV $ b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Return on franc flows b-2. What is the NPV of the project in Swiss francs ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in francs, not in millions, e.g., 1,234,567.) NPV SF b-3. What is the NPV in dollars if you convert the franc NPV to dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not in millions, e.g., 1,234,567.) NPV

Explanation:

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