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 11%. The current exchange rate is 1,062 won per U.S. dollar.
Risk-free interest rates in the United States and S. Korea are:
1-Year
United States 3%, S. Korea 2%
2-Year
United States 3.5% S. Korea 2.5%
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. $
E. If Nam Sung undertakes the project, what is the net present value and rate of return of the project for Solitaire? Round your answers to two decimal places. Two answers: e1.= NPV in won e2. = Rate of return %
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 11%. The current exchange rate is 1,062 won per U.S. dollar.
Risk-free interest rates in the United States and S. Korea are:
1-Year
United States 3%, S. Korea 2%
2-Year
United States 3.5% S. Korea 2.5%
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. $
E. If Nam Sung undertakes the project, what is the net present value and rate of return of the project for Solitaire? Round your answers to two decimal places. Two answers: e1.= NPV in won e2. = Rate of return %
Related questions
Foreign Capital Budgeting
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 11%. The current exchange rate is 1,069 won per U.S. dollar. Risk-free interest rates in the United States and S. Korea are:
| 1-Year | 2-Year | |
| United States | 3% | 4.25% |
| S. Korea | 2% | 3.25% |
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.
$ _______________
What would be the rate of return generated by this project? Round your answer to two decimal places.
___________%
B) What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places.
__________ won per U.S. $
What is the expected forward exchange rate 2 years from now? Round your answer to two decimal places.
________won per U.S. $
C) If Nam Sung undertakes the project, what is the net present value and rate of return of the project for Solitaire? Round your answers to two decimal places.
| NPV | _______won |
| Rate of return | _______ % |
