Question

tivity: Foreign capital budgeting a Search this cour Excel Online Structured Activity: Foreign capital budgeting Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine'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 $2000 and a cash inflow the following year of $2400. Sandrine estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 0.75 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 7%, while similar securities in Switzerland are yielding 4.5%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Open spreadsheet a. If this project was instead undertaken by a similar U.S.-based company with the same risk adjusted cost of capital, what would be the net present value and rate of return generated by this project? Round your answers to two decimal places. NPV = $ Rate of return b. What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places SF per U.S. $ C. If Sandrine undertakes the project, what is the net present value and rate of return of the project for Sandrine? Do not round intermediate calculations. Round your answers to two decimal places NPV Swiss Francs Rate of return

Answer 1

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- 2x Insert Delete Format Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells XI XK XL ke - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri 11 - AA = = = r *Wrap Text General Ea Copy Paste BI U D SF A Merge Merge & Center - Center Format Painter $ % % 4:0 .00 88 Conditional Format Cell Formatting as Table Styles Clipboard Font Alignment Number Styles XG76 | XB XC XD XE XE | XG | XH XI 76 77 SANDRINE MACHINERY 79 80 IF A US BASED COMPANY UNDERTAKES THE PROJECT, NPV = PRESENT VALUE OF CF - INITIAL INVESTMENT NPV = 2400/(1+0.13) - 2000 = 123.89 83 84 RATE OF RETURN = CF1/CFO - 1 86 RATE OF RETURN = 2400/2000 - 1 RATE OF RETURN = 20.00% 78 81 82 85 88 89 CALCULATION OF FORWARD RATE FORWARD RATE = SPOT RATE *(1+SWSS RATE)/(1+US RATE) FORWARD RATE = 0.75*(1+0.045)/(1+0.07) FORWARD RATE = 0.73 91 92 93 CVCUTANIC N K Convexity DGM betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean YIELD bond portfolio E CAPM UTILITY, SHARPE, beta ferences: GF466 Rea cap stru WACC RESI el BOI 130% - O- * 410 ENG 05-11-2019 DO 4

ke - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Calibri Dr General -11AA = = = D- DA BEHERRE Wrap Text Merge Merge & Center - Center BI U SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select E Copy Paste Format Painter Clipboard XF105 XB Font Alignment Number Cells | XC XD XE | XE XG XH XL X X XL 93 94 C YEAR 95 96 97 98 99 100 EXCHANGE CF($) RATE CF(SWISS) PV FACTOR PV OF CF А в A*B at 13% SWISS 0 -2000 0.75 -1500 1 - 1500 2400 0.73 7 1757.94 0.8850 1555.7 55.70 in swiss francs NPV 101 RATE OF RETURN (SWISS) CF1/CFO - 1 1757.94/1500 - 1 = 102 17.20% 103 104 105 106 107 108 109 110 111 HO Rea N convexity DGM betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean YIELD bond portfolio KE CAPM UTILITY, SHARPE, beta ferences: 130 cap stru WACC BOU 130% RESI el O DO 4 * 410 ENG 05-11-2019