Consider the following international investment opportunity. It involves a gold mine that can beopened at a cost, then produces a positive cash flow, but then requires environmental clean-up. Year0: -64,000 Euros Year 1: 160,000 Euros Year 2: -100,000 Euros The current exchange rate is $1.60 = 1Euro. The inflation rate in the U.S. is 6 percent and in the euro zone 2 percent. The appropriate costof capital to a U.S. -based firm for a domestic project of this risk is 8 percent. Find the dollar cashflows to compute the dollar - denominated NPV of this project. And also find the euro - zone cost ofcapital.

Absolutely, to compute the dollar-denominated Net Present Value (NPV) of this project, we need to…

Answered: Consider the following international…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 14P

See similar textbooks

Similar questions

Consider the following international investment opportunity. It involves a gold mine that can be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up. Year 0 + -€64,000 Year 1 Year 2 €160,000 -€100,000 The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 6 percent and in the euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of this risk is 8 percent. Find the euro-zone cost of capital. Write it down in percent with two decimals places.
Lakonishok Equipment has an investment opportunity in Europe. The project costs €13 million and is expected to produce cash flows of €2.6 million in Year 1, €3.2 million in Year 2, and €3.7 million in Year 3. The current spot exchange rate is $1.41 / €; and the current risk- Lakonishok Equipment has an investment opportunity in Europe. The project costs €13 million and is expected to produce cash flows of €2.6 million in Year 1, €3.2 million in Year 2, and €3.7 million in Year 3. The current spot exchange rate is $1.41 / €; and the current risk-free rate in the United States is 2.7 percent, compared to that in Europe of 2 percent. The appropriate discount rate for the project is estimated to be 14 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €8.6 million. Use the exact form of interest rate parity in calculating the expected spot rates. What is the NPV of the project in U.S. dollars? free rate in…
Lakonishok Equipment has an investment opportunity in Europe. The project costs €17491457 and is expected to produce cash flows of €3443382 in Year 1, €4719807 in Year 2, and €5267392 in Year 3. The current spot exchange rate is $1.20/€ and the current risk-free rate in the United States is 3.22%, compared to that in Europe of 2.98%. The appropriate discount rate for the project is estimated to be 11.10%, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €12673677. What is the NPV of the project? NOTE: Enter the number rounding to four DECIMALS.
Company X has an investment opportunity in Europe. The project costs €30,000,000 and is expected to produce cash flows of €21,000,000in Year 1, €31,000,000 in Year 2 and €22,000,000 in Year 3. The current exchange rate is €1.25% and the current risk free rate in United States is 5% compared to that of Europe of 3.5%. The appropriate discount rate for the project is estimated to be 13% the U.S. cost of capital for the company. In addition the subsidiary can be sold at the end of three years for an estimated €6,250,000. a. What is the NPV of the project? *Use the Home Currency Approach to calculate the NPV.
Lakonishok equipment has an investment opportunity in Europe. The project cost 14,750,000 in europe currency and is expected to produce cash flows of euro 3,350,000 in year 1, euro 4,350,000 in year 2, and euro 4,750,000 in year 3. The current spot exchange rate is $ .83 in euros and the current risk free rate in the united states is 3 percent, compared to that in euroland of 2.2 percent. The appropriate discount rate for the project is estimated to be 10 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated 9,250,000 in euros. What is the NPV of the project in U.S dollars? Do not round intermediate calculations and enter your answers in dollars , not in million of dollars , rounded to 2 decimal places e.g. 1,234,567,.89.
Lakonishok Equipment has an investment opportunity in Europe. The project costs €15,450,000 and is expected to produce cash flows of €4,050,000 in Year 1, €5,050,000 in Year 2, and €5,450,000 in Year 3. The current spot exchange rate is $.74/€ and the current risk-free rate in the United States is 2.9 percent, compared to that in euroland of 2.1 percent. The appropriate discount rate for the project is estimated to be 9 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9,950,000. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) X Answer is complete but not entirely correct. NPV $ 3,570,391.95 x
Lakonishok Equipment has an investment opportunity in Europe. The project costs €15,200,000 and is expected to produce cash flows of €3, 800,000 in Year 1, €4, 800,000 in Year 2, and €5, 200,000 in Year 3. The current spot exchange rate is $.83/€ and the current risk - free rate in the United States is 2.6 percent, compared to that in euroland of 2.1 percent. The appropriate discount rate for the project is estimated to be 11 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9, 700,000. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
B Lakonishok Equipment has an investment opportunity in Europe. The project costs €15,250,000 and is expected to produce cash flows of €3,850,000 in Year 1, €4,850,000 in Year 2, and €5,250,000 in Year 3. The current spot exchange rate is $.78/€ and the current risk-free rate in the United States is 2.6 percent, compared to that in euroland of 2.2 percent. The appropriate discount rate for the project is estimated to be 12 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9,750,000. What is the NPV of the project in U.S. dollars? (Do not found intermediate calculations and enter your answer in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Answer is complete but not entirely correct. $ 525,486,652 40 NPV
Lakonishok Equipment has an investment opportunity in Europe. The project costs €12 million and is expected to produce cash flows of €2 million in Year 1, €2.4 million in Year 2, and €3.5 million in Year 3. The current spot exchange rate is 1.35€/$ and the current risk-free rate in the United States is 2.8 percent, compared to that in Europe of 2 percent. The appropriate discount rate for the project is estimated to be 14 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9 million. Use the exact form of interest rate parity in calculating the expected spot rates. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to two decimal places, e.g., 1,234,567.89) NPV I
Lakonishok Equipment has an investment opportunity in Europe. The project costs €20,065,563 and is expected to produce cash flows of €3,524,370 in Year 1, €4,549,121 in Year 2, and €5,590,740 in Year 3. The current spot exchange rate is $1.38/€ and the current risk-free rate in the United States is 3%, compared to that in Europe of 3.08%. The appropriate discount rate for the project is estimated to be 11.07%, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €13,733,917. What is the NPV of the project?
Lakonishok Equipment has an investment opportunity in Europe. The project costs €14 million and is expected to produce cash flows of €2.4 million in Year 1, €3 million in Year 2, and €3.9 million in Year 3. The current spot exchange rate is $1.39/€; and the current risk-free rate in the United States is 2.0 percent, compared to that in Europe of 2.5 percent. The appropriate discount rate for the project is estimated to be 12 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9.4 million. Use the exact form of interest rate parity in calculating the expected spot rates. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to two decimal places, e.g., 1,234,567.89)
You are analyzing a very low-risk project with an initial cost of €120000. The project is expected to return €40000 the first year, €50000 the second year and €60000 the third year. The current spot rate is €.54. The nominal return relevant to the project is 4 percent in the U.K. and 3 percent in the U.S. using the home currency approach, what is the net present value of this project in U.S dollars?

SEE MORE QUESTIONS

Recommended textbooks for you

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning