Question

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 0.84 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 7.25%, while similar securities in Switzerland are yielding 3%. 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. x 1 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. $

Answer 1

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- 2x Σ AutoSum : A Fill Z Sort & 2 Clear Filter Editing Styles Find & Select Cells XI | XI | XK XL ke - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = = Dr Wrap Text General Ea Copy Paste Format Painter BI U D- DA Merge & Center - $ % , :.: Formatting as Table Clipboard Font Alignment Number Styles XJ76 - for | XB XC XD XE XE XG XH 76 77 SANDRINE MACHINERY 79 80 IF A US BASED COMPANY UNDERTAKES THE PROJECT, NPV = PRESENT VALUE OF CF - INITIAL INVESTMENT 82 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 85 88 89 CALCULATION OF FORWARD RATE FORWARD RATE = SPOT RATE *(1+SWSS RATE)/(1+US RATE) FORWARD RATE = 0.84*(1+0.03)/(1+0.0725) FORWARD RATE = 0.81 91 92 93 CVCUTANIC N K Convexity DGM betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right E CAPM UTILITY, SHARPE, beta ferences: GF466 Rea clean YIELD bond portfolio cap stru WACC BOI 130% DOR . * RESI el 20- ENG 01-11-2019

ke - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Σ AutoSum : A Dr General Wrap Text Merge Merge & Center - Center SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Calibri -11AA = = = BI U D- DA Font fc XC XD Find & Select Sort & Filter Editing E Copy Paste Format Painter Clipboard XJ93 - 0 | XB Alignment Number Cells XE XE XG XH XI | XI | XK XL 93 94 95 C YEAR 0 1 EXCHANGE CF($) RATE CF(SWISS) PV FACTOR PV OF CF A B A*B at 13% SWISS -2000 0.84 -1680 1 -1680 2400 0 .81 1936.11 0.8850 1713.37 NPV 33.37 in swiss francs 96 97 98 99 100 101 102 103 104 RATE OF RETURN (SWISS) CF1/CFO - 1 1936.11/1680 - 1 = 15.24% 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 KE CAPM UTILITY, SHARPE, beta ferences: GF466 YIELD bond portfolio cap stru WACC BO 130% RESI el - DOR . * ENG 01-11-2019