Question

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 $1,000 and a cash inflow the following year of $1,200. Sandrine estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 0.74 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 7%, while similar securities in Switzerland are yielding 3%.

1. 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 =  %
2. 
   
3. What is the expected forward exchange rate 1 year from now? Do not round intermediate calculations. Round your answer to two decimal places.
   = Swiss franc (SF_r) per U.S. $
4. 
   
5. 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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ke - Microsoft Excel (Product Activation Failed) Add-Ins View - 2x Dr General SF Wrap Text Merge Merge & Center Center File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste Format Painter B I U - D A Clipboard Font 118 fx G H I $ - % % 4:0 .00 8.9 Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Number Cells L M N O P Q R wn IF A US BASED COMPANY UNDERTAKES THE PROJECT, NPV = PRESENT VALUE OF CF - INITIAL INVESTMENT NPV = 1200/(1+0.13) - 1000 = 61.95 000 vo RATE OF RETURN = RATE OF RETURN = RATE OF RETURN = CF1/CFO - 1 1200/1000 - 1 20.00% 11 12 нь 13 CALCULATION OF FORWARD RATE FORWARD RATE = SPOT RATE *(1+SWSS RATE)/(1+US RATE) FORWARD RATE = 0.74 *(1+0.03)/(1+0.07) FORWARD RATE = 0.71 14 15 16 17 18 19 convexity DGM betaport future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean RI O HON Rea KE CAPM UTILITY, SHARPE, beta ferences YIELD bond portfolio WACC DOI 130% - 9 * 40 ENG O- 2. B 30-11-2019

X 2 E. Insert = Page Layout ke - Microsoft Excel (Product Activation Failed) Add-Ins File Home Formulas Data Review View - 2x % Cut Σ AutoSum : A Calibri Dr General -11AA = = = D A E E E Wrap Text FMerce Merge & Center Center B I U - s $ - % % 4.0 .00 8.9 Insert Delete Format Conditional Format Formatting as Table Styles Fill 2 Clear E Copy Paste Format Painter Clipboard 134 Cell Styles Sort & Filter Editing Find & Select Font Alignment Number Cells G H I o P Q R 16 17 YEAR 18 19 20 21 22 23 24 25 EXCHANGE CF($) RATE CF(SWISS) АВ A*B -1000 0.74 -740 1200 0.71 854.80 NPV PV FACTOR PV OF CF AT 12% SWISS 1 -740 0.9091 777.094308 37.09 RATE OF RETURN (SWISS) CF1/CFO - 1 854.80/740-1 = 15.51% 27 28 29 30 31 32 33 34 convexity DGM betaport future INDEX INTL CAP BUD SANDRINE LEASING PV, FV, ANNUITY DIR right clean RI O HON Rea KE CAPM UTILITY, SHARPE, beta ferences YIELD bond portfolio WACC DOI 130% - 9 * 40 ENG O- 2. B 30-11-2019