Question

You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF21 million. The cash flows from the project would be SF5.5 million per year for the next five years. The dollar required return is 12 percent per year, and the current exchange rate is SF1.07. The going rate on Eurodollars is 6 percent per year. It is 3 percent per year on Swiss francs. a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not in millions, e.g., 1,234,567.) NPV $ b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Return on franc flows b-2. What is the NPV of the project in Swiss francs ? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in francs, not in millions, e.g., 1,234,567.) NPV SF b-3. What is the NPV in dollars if you convert the franc NPV to dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not in millions, e.g., 1,234,567.) NPV

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut A A Wrap Text Calibri 11 General Copy Fill Merge & Center Sort & Find & Filter Select Paste B I U $ %, +.0 .00 Conditional Format Cell Insert Delete Format .00 0 Format Painter Clear Formatting as Table Styles Cells Editing Clipboard Font Alignment Number Styles fox GH142 FZ GE GH FY GA GB GC GD GF GG GI 136 WE CAN USE HERE RELATIVE PURCHASING POWER PARITY TO CALCULATE THE DOLLAR CASH FLOWS AT EACH TIME (SWISS FRNC/$)(1 - DOLLAR RATE SWISS RATE) 137 EXPECTED EXCHANGE RATE = 1.07 (1 - 0.06 0.03) 1.07 (0.97) 138 139 YEAR EXCHANGE RATE 1.0700 140 0 1.0379 1.07(0.97^1) 141 1 1.0068 1.07(0.97^2) 142 2 0.9766 1.07(0.97^3) 0.9473 1.07(0.97^4) 143 3 144 4 0.9188 1.07(0.97^5) 145 5 (a) 146 147 PV FACTOR PV OF CFAT ($) CFAT(S) 148 AT 12% YEAR CFAT EXCHANGE RATE A/B (A/B) * C 149 A В C 150 0 -21000000 1.0700 -19626168.22 1 -19626168.22 151 1 5500000 1.0379 5299161.77 0.8929 4731394.44 152 2. 5500000 1.0068 5463053.37 0.7972 4355112.70 153 5500000 0.9766 5632013.78 0.7118 4008756.17 154 4 5500000 0.9473 5806199.78 0.6355 3689944.93 155 5 5500000 0.9188 5985772.97 0.5674 3396488.33 NPV ($) SANDRINE ANSWER 156 555528.34 INTL CAP BUD UTILITY, SHARPE, beta clean YIELD bond portfolio CONVEXITY DGM beta RT КE САРМ port future INDEX PV, FV, ANNUITY DIR right LEASING WACC Rea erences: 130 II 120% WA 01:59 ENG 27-11-2019

ke - Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins Z AutoSum Cut A A Wrap Text Calibri 11 General Copy Fill Merge & Center Paste B I U 000 Conditional Format Cell Insert Delete Format Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Alignment Number Clipboard Font Styles Cells Editing GH177 FY FZ GA GB GC GD GE GF GG GH GI (b-1) 158 REQUIRED RETURN ON FRANC FLOWS REQUIRED RETURN =(1 DOLLAR RETURN) (1-0.06 0.03) - 1 159 REQUIRED RETURN = (( 1+0.12)*(1 -0.06 0.03)) - 1 = 8.64% 160 161 (b-2) PV OF 162 PV FACTOR AT 8.64% CFAT CFAT 163 YEAR PV FACTOR A*B 164 В 1/(1+0.0864)^0 1/(1+0.0864)^1 1/(1+0.0864)^2 1/(1+0.0864)A3 1/(1+0.0864)^4 1/(1+0.0864)A5 165 0 -21000000 1 -21000000.00 0.9205 166 1 5500000 5062592.05 4659970.59 167 2 5500000 0.8473 0.7799 168 5500000 4289369.10 169 4 5500000 0.7179 3948241.07 5500000 0.6608 3634242.52 170 5 171 ANSWER NPV IN SWISS 594415.32 172 FRANCS 173 (b-3) 174 NPV IN DOLLARS NPV 594415.32/1.07 555528.34 175 176 ANSWER NPV IN DOLLARS 555528.34 177 178 UTILITY, SHARPE, beta DGM beta LEASING PV, FV, ANNUITY DIR right RI КЕ САРМ clean YIELD bond portfolio cONvexity port future INDEX INTL CAP BUD SANDRINE WACC Rea erences: 130 120% WA 02:00 ENG 27-11-2019