Question

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	_______ %