Question

The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. The project's expected dollar cash flows consist of an initial investment of $1 million with cash inflows of $700,000 in Year 1 and $600,000 in Year 2. The risk-adjusted cost of capital for this project is 13%. The current exchange rate is 1,058 won per U.S. dollar.

Risk-free interest rates in the United States and S. Korea are:

1-Year

United States 5%, S. Korea 4%

2-Year

United States 4.75% S. Korea 3.75%

A. If this project were instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value generated by this project? Round your answer to the nearest cent. = $

B. What would be the rate of return generated by this project? Round your answer to two decimal places. = %

C. What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places. = won per U.S. $

D. What is the expected forward exchange rate 2 years from now? Round your answer to two decimal places. = won per U.S. $