On February 26, 2015, an American company

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On February 26, 2015, an American company Click Link Below To Buy: http://hwcampus.com/shop/1-on-february-26-2015-an-american-company-company-a-sold-an-euro-denominated/ Or Visit www.hwcampus.com 1. On February 26, 2015, an American company, Company A, sold an euro-denominated eight-year bond at a fixed interest rate of 1%. In comparison, a similarly rated company, Company B, sold a bond with the same maturity in the U.S. with a coupon of 2.5%. The exchange rate on February 26, 2015 was $1.1199/€. Assume that the International Fisher Effect holds true. What will be the total expected foreign exchange gain or loss for both the interest payment and the value of the bond (in percentage) for Company A each year in the next eight years? Click Link Below To Buy: http://hwcampus.com/shop/1-on-february-26-2015-an-american-company-company-a-sold-an-euro-denominated/ Your answer: _______________% (Keep two decimals; Do include the “-” if your answer is a loss.) 2. At the end of 2014, a Eurozone firm considers an investment project in Switzerland. The firm’s cost of capital is 10% and the firm uses this as its discount rate for the proposed investment. The initial investment and free cash flows for subsequent years (a horizon of five years) are presented in the table below. On January 15, 2015, the Swiss National Bank removed the exchange rate cap and the exchange rate changed fromSfr1.20/€ toSfr1.00/€. The exchange rate is expected to stay at the new level for the investment horizon. The exchange rate change does not affect cash flows in Swiss franc but does affect the conversion from Swiss franc cash flows to euro cash flows. Which of the following statement addresses correctly the effect of the exchange rate change on the firm’s capital budgeting? a. NPV is positive both before and after the exchange rate change. b. NPV is negative both before and after the exchange rate change. c. NPV is positive before the exchange rate change but turns negative after the exchange rate change. d. NPV is negative before the exchange rate change but turns positive after the exchange rate change. 3. Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation rates of 6% in Norway and 3% per annum in the U.S., what is the expected one-year spot rate of krone per dollar according to PPP? Your answer: Krone_______________/$ (Keep two decimals; Do include the “-” if your answer is a negative number.) Assume that an MNE considers two alternative modes of entering a potential market abroad: licensing and foreign direct investment. The initial investment outlays in year 0 and free cash flows for subsequent years are presented below ($ millions): Refer to this information for Questions 4 to 7 4. What is the IRR for the licensing alternative? Your answer: _______________% (Keep two decimals; Do include the “-” if your answer is a negative number.) 5. What is the NPV for FDI alternative if cost of capital for the project is 12%? Your answer: $_______________million (Keep two decimals; Do include the “-” if your answer is a negative number.) 6. Which alternative would you recommend if the two alternatives are mutually exclusive? a. Licensing. b. FDI. c. Neither is acceptable. 7. Assume that a proposed investment project requires an initial investment of $10 million and the expected cash flow is $2 million each year for the next five years. Starting from year 6, the project will have a perpetual net operating cash flow of $1.2 million each year. The project’s cost of capital is 15%. What is the project’s NPV? Your answer: $_______________million (Keep two decimals; Do include the “-” if your answer is a negative number.)

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On February 26, 2015, an American company Click Link Below To Buy: http://hwcampus.com/shop/1-on-february-26-2015-an-american-company-company-a-sold-an-euro-denominated/ Or Visit www.hwcampus.com 1. On February 26, 2015, an American company, Company A, sold an euro-denominated eight-year bond at a fixed interest rate of 1%. In comparison, a similarly rated company, Company B, sold a bond with the same maturity in the U.S. with a coupon of 2.5%. The exchange rate on February 26, 2015 was $1.1199/€. Assume that the International Fisher Effect holds true. What will be the total expected foreign exchange gain or loss for both the interest payment and the value of the bond (in percentage) for Company A each year in the next eight years? Click Link Below To Buy: http://hwcampus.com/shop/1-on-february-26-2015-an-american-company-company-a-sold-an-euro-denominated/ Your answer: _______________% (Keep two decimals; Do include the “-” if your answer is a loss.) 2. At the end of 2014, a Eurozone firm considers an investment project in Switzerland. The firm’s cost of capital is 10% and the firm uses this as its discount rate for the proposed investment. The initial investment and free cash flows for subsequent years (a horizon of five years) are presented in the table below. On January 15, 2015, the Swiss National Bank removed the exchange rate cap and the exchange rate changed fromSfr1.20/€ toSfr1.00/€. The exchange rate is expected to stay at the new level for the investment horizon. The exchange rate change does not affect cash flows in Swiss franc but does affect the conversion from Swiss franc cash flows to euro cash flows. Which of the following statement addresses correctly the effect of the exchange rate change on the firm’s capital budgeting? a. NPV is positive both before and after the exchange rate change. b. NPV is negative both before and after the exchange rate change. c. NPV is positive before the exchange rate change but turns negative after the exchange rate change. d. NPV is negative before the exchange rate change but turns positive after the exchange rate change. 3. Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation rates of 6% in Norway and 3% per annum in the U.S., what is the expected one-year spot rate of krone per dollar according to PPP? Your answer: Krone_______________/$ (Keep two decimals; Do include the “-” if your answer is a negative number.) Assume that an MNE considers two alternative modes of entering a potential market abroad: licensing and foreign direct investment. The initial investment outlays in year 0 and free cash flows for subsequent years are presented below ($ millions): Refer to this information for Questions 4 to 7 4. What is the IRR for the licensing alternative? Your answer: _______________% (Keep two decimals; Do include the “-” if your answer is a negative number.) 5. What is the NPV for FDI alternative if cost of capital for the project is 12%? Your answer: $_______________million (Keep two decimals; Do include the “-” if your answer is a negative number.) 6. Which alternative would you recommend if the two alternatives are mutually exclusive? a. Licensing. b. FDI. c. Neither is acceptable. 7. Assume that a proposed investment project requires an initial investment of $10 million and the expected cash flow is $2 million each year for the next five years. Starting from year 6, the project will have a perpetual net operating cash flow of $1.2 million each year. The project’s cost of capital is 15%. What is the project’s NPV? Your answer: $_______________million (Keep two decimals; Do include the “-” if your answer is a negative number.)

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