International Financial Management
International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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FOREIGN CAPITAL BUDGETING Sandrine Machinery is a Swiss multinationalmanufacturing company. Currently, Sandrine’s financial planners are consideringundertaking a 1-year project in the United States. The project’s expected dollardenominated cash flows consist of an initial investment of $2,000 and a cash inflow thefollowing year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10%.Currently, 1 U.S. dollar will buy 0.94 Swiss franc. In addition, 1-year risk-freesecurities in the United States are yielding 3%, while similar securities in Switzerlandare yielding 1.50%.a. If this project was instead undertaken by a similar U.S.-based company with the samerisk-adjusted cost of capital, what would be the net present value and rate of returngenerated by this project?b. What is the expected forward exchange rate 1 year from now?c. If Sandrine undertakes the project, what is the net present value and rate of return of theproject for Sandrine?
years: in the first year, 1.5 million and in the second year One million. In addition the following Suppose an Ethiopian metal manufacturing firm is thinking of investment for making metals in USA. It is estimated that the initial project cost will be 2.5 million in USA Dollar. It is also estimated that the project will generate the following free cash flows in US $ for the next two Problem 3 rates are estimated: Spot exchange rate, 1 US $ = 22 Birr One year forward rate, 1 US $= 24 Birr Two year forward rate, 1 US $ = 21 Birr Cost of capital is 10 percent. Should it be accepted or rejected? Why? (Show it mathematically using Net Present Value method)
A bank is considering two alternatives for handling its service calls in the next decade ( treat this as one period). The projected number of service calls is 10,000,000. If the bank sets up its own service call center in the U.S., the fixed cost is estimated to be $2,700,000, and the variable cost is calculated to be 32 cents per call. If the call service is outsourced to a foreign company, the fixed cost would be $240,000, and the unit charge would be 57 cents per call.  (a)What is the break-even number of service calls?  (b)Would the bank set up its own service call center or outsource call handlings? (Enter 1 for Produce or enter O for Outsource)  (C)What would be the dollar amount that the bank can save by choosing the better option? (Cost difference between the two options)
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