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 $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 0.83 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 6%, while similar securities in Switzerland are yielding 3.5%. 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

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. What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places.

   SF per U.S. $

3. 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 = %

SPREADSHEET TO WORK FROM:

Foreign capital budgeting
Initial investment (U.S. Dollars)	$2,000
Year 1 Inflow (U.S. Dollars)	$2,400
Risk-adjusted cost of capital	13.00%
Spot rate, Number Swiss francs per U.S. Dollar	0.83
Yield, 1-yr. U.S. securities	6.00%
Yield, 1-yr. Swiss securities	3.50%
			Formulas
U.S. NPV			#N/A
U.S. rate of return			#N/A
1-yr. forward rate, Swiss francs per U.S. Dollar			#N/A
Initial investment (Swiss francs)			#N/A
Year 1 Inflow (Swiss francs)			#N/A
NPV (Swiss francs)			#N/A
Swiss rate of return			#N/A

Answer 1

­SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

. 10:44 = W @v ra 1x 3 ENG 21-03-2020 ... o X B23 X ✓ fx B Ś 2 3 INITIAL INVESTMENT 4 YEAR 1 INFLOW 5 RISK ADJUSTED COST OF CAPITAL 6 SPOT RATE, SWISS FRANCS PER US DOLLAR 7 YIELD 1 YR US SECURITY 8 YIELD 1 YR SWISS SECURITY 2,000 2,400 13.00% 0.83 6.00% 3.50% 9 123.89 20.00% (=B4/(1+B5) -B3] [=B4/B3-1] 0.8104 [=B6*(1+B8)/(1+B7)] 10 US NPV 11 US RATE OF RETURN 12 13 1 YR FORWARD RATE, SWISS FRANCS PER US DOLLAR 14 15 INITIAL INVESTMENT (SWISS FRANCS) 16 YEAR 1 INFLOW (SWISS FRANCS) 17 18 NPV (SWISS FRANCS) 19 SWISS RATE OF RETURN 1660.00 1945.02 [=B3*B6] [=B4*B13] 61.26 17.17% [=B16/(1+B5) -B15] [=B16/B15-1] 20 21 22 23 ... UTILITY, SHARPE, beta coNvexity DGM beta port future INDEX INTL CAP BUD SANDRINE LEASING PORTFOLOQ DIR right clean YIELD bond portfolio ... +