Due on Dec 11 at 11 PM EST One of the important components of multinational capi

Question

Due on Dec 11 at 11 PM EST One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies Consider this case: ing 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$800,000 today and is expected to generate cash flows of AU$1,000,000 at the end of each of the next two years The current exchange rate of the u.S. dollar against the Australian dollar is s0.7877 per Australian dollar (AU$) The one-year forward exchange rate is $0.8109/ Aus, and the two-year forward exchange rate s $0.8455/ AU$. ·The firm's weighted average cost of capital (WACC) is 9.5%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? $815,544 $733,990 $937,876 $693,212 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. Type here to search

Explanation / Answer

Q1- 815544

Workings

NPV is calculated using NPV function in excel as =NPV(9.5%,CF years 1&2)+ CF Year 0

Q2:

EuroBond

Year Cash flows in AUD Exchange rate CF in USD 0 -800000 0.7877 -630160 1 1000000 0.8109 810900 2 1000000 0.8455 845500 NPV $815,544.22

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