Question

Average: /2 Attempts 7. International capital budgeting One of the important components of multinational capital budgeting is to analyze the cash flows generated from Aa Aa subsidiary companies Consider this case: Sebrele Enterprises Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project The project requires an investment of AU$987,000 today and is expected to generate cash flows of AU$850,000 at the end of each of the next two years. The current exchange rate of the U.S. dollar against the Australian dollar is $0.7877 per Australian dollar (AU$) The one-year forward exchange rate is $0.8109 / AUS, and the two-year forward exchange rate is $0.8455/ AU$ The firm's weighted average cost of capital (WACC) is 8%, and the project is of average risk. . What is the dollar-denominated net present value (NPV) of this project? $453,051 $572,275 $596,120 $476,896

Thank you!

Answer 1

Ans 1)

Year	0	1	2
Cashflow	-987000	850000	850000
Exchange rate	0.7877	0.8109	0.8455
PV	-777459.90	638208.33	616147.98

NPV of this project = $476896

Ans 2) British company need to issue a foreign bond . Foreign bond is a bond issued in domestic market by foreign entity, in the domestic market's currency.