One of the important components of multinational capital budgeting is to analyze

Question

One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies. Consider this case: Jing Associates Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project: The project requires an investment of AU$1,340, 000 today and is expected to generate cash flows of AU$1,000, 000 at the end of each of the next two years. The current exchange rate of the U.S. dollar against the Australian dollar is $0.7877 per Australian dollar (AUS). The one-year forward exchange rate is $0.8109/AU$, and the two-year forward exchange rate is $0.8455/AU$. The firm's weighted average cost of capital (WACC) is 9%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? $400, 067 $360, 060 $340, 057 $460, 077 There are three major types of international credit markets. Read the following statement and then indicate which type of international credit market is being described. Expert Certising Inc., a British company, issued U.S. dollar-denominated bonds in Chicago to fund its U.S. operations. Euro credit Eurobond Foreign bond

Explanation / Answer

$ 400,067

Calculation of net present value: Years 0 1 2 Cash flow (aus dollar) -1340000 1000000 1000000 Cash flow (us dollar) -1055518 810900 845500 Discount factor (9%) 1 0.917 0.842 Present value -1055518 743945 711640.4343 Net Present value (US dollar) 400067

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