Lakonishok Equipment has an investment opportunity in Europe. The project costs €14,750,000 and is expected to produce cash flows of €3,350,000 in Year 1, €4,350,00 in Year 2, and €4,750,000 in Year 3. The current spot exchange rate is $.83/€ and the current risk-free rate in the United States is 3 percent, compared to that in euroland of 2.2 percent. The appropriate discount rate for the project is estimated to be 10 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the en of three years for an estimated €9,250,000. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) NPV

Lakonishok Equipment has an investment opportunity in Europe. The project costs €14,750,000 and is expected to produce cash flows of €3,350,000 in Year 1, €4,350,00 in Year 2, and €4,750,000 in Year 3. The current spot exchange rate is $.83/€ and the current risk-free rate in the United States is 3 percent, compared to that in euroland of 2.2 percent. The appropriate discount rate for the project is estimated to be 10 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the en of three years for an estimated €9,250,000. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) NPV

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Jetta production cost in 2002 and 2003 was 8,500 Euro per Jetta. Jettas were sold in US at $12,000 in 2002 and 2003. Forward hedge exchange rate was 1 $/Euro in 2003. The market exchange rate was 1.83 $/Euro (i.e. rate without hedge) in 2003. If 1,500 Jetta were sold in US, in 2003, by 40% forward hedge and 60% not hedged. What would be profits or loss from sales of 1,500 Jetta in US? € 351,639 €1, 281,946 € 1,291,661 € 362,259
ArtTech exports a specialized machine part to Japan. The price set in Japan is ¥120,000 and the cost incurred in the US is $800. The current exchange rate is ¥120 per dollar. Over a year the inflation rate in US is 2% and the inflation rate in Japan is 1%. The price in Japan increases with the local inflation rate and the cost in the US increases by the US inflation rate. What will be the percentage change in the profit per unit one year later if the exchange rate did not change? [First compute the profit before and after the price/cost changes due to inflation.] -1% -2% -3% If the market exchange rate remains constant while the PPP based exchange rate rises (for rates quoted as dollars per pound) the real exchange rate (dollars per pound) will: Increase Decrease If the nominal exchange rate (dollars per pound) remains constant and the inflation in UK is greater than the inflation rate in the US we can conclude that:…
Suppose the annual interest rates in the U.S. (home nation) and the U.K (foreign nation) are 8% and 6%, respectively. A U.K. interest arbitrager decides to invest £10,000 in the U.S for three months. Given that the current spot rate is $2 per pound, calculate the EUD from investing in the U.S., assuming that on the maturity date the U.S. dollar is expected to depreciate by 1%. Interpret your result.
Assume that an investor has invested $100,000 in Japanese equities. When purchased, the stock's price and the exchange rate were ¥100 and ¥100/$1.00 respectively. At selling time, one year after purchase, they were ¥110 and ¥110/$1.00. There were no dividend payouts. If the investor had sold ¥10,000,000 forward at the forward exchange rate of ¥105/$1.00, the total dollar rate of return for the investor's combined foreign equity investment currency hedging would be _____ A.-27.27% B. 4.33% C. -9.09% D. 28%
Suppose that a U.S. company wishes to purchase goods from a German producer. The U.S. firm agrees to take the delivery of the goods in three months and to pay €1 million Euros at that time. This company wishes to avoid this exchange rate risk by buying Euros at the 3-month forward rate, f = 0.95 (€/$). Then, how much this company would have to pay in US dollars in exchange for €1 million Euros? a. $1 million dollars. b. $1,052,632 dollars. c. $950,000 dollars.
The US company needs funding in the amount of 5 million USD. Funding may be in the form of a debt: 4-year bonds issued in USD, interest rate: 10 percent per year. The company, however, considers the possibility of raising the debt in EUR at 8 percent annually. The current exchange rate is USD 1 = 0.8 EUR. The future scenarios of FX rates are presented below. Decide which option is better for the company. a) stable: 0.8; 0.7; 0.85; 0.9; 0.8 b) weakening: 0.8; 0.75; 0.7; 0.65; 0.6 c) strengthening: 0.8; 0.85; 0.9; 0.95; 0.98
Let’s suppose you (USA dealer) imported a product from German on Dec 1, 2018 at € 300, payable in 60 days. You sold the product in the US market at $400 in cash on Dec 15, 2018. The company's fiscal year ends on Dec 31. You paid to your German supplier on Feb 1, 2019. Below, please find the exchange rate information: Dec 1, 2018: 0.8 €/$.. Dec 31, 2018: 1.5 €/$. Feb 1, 2019: 0.6 €/$. What was net income for 2018 and 2019, respectively? Group of answer choices -$200, -$100 -$100, $200 $300, -$200 $200, -$300
A British company that exports shoes to Switzerland wants to exchange the Swiss franc (SF) for British pounds. If the US Dollar Rate of the two currencies is disclosed as follows: £0.5120-0.5130/US$, SF1.1230-1.1240/US$ Calculate and disclose the purchase/sale exchange rate between the two currencies as £/SF by the Cross Rate. If the export price received by a British company is SF10,000, what is the amount of British pound after the exchange?
A foreign exchange trader with a U.S. bank took a speculative long position of £6,000,000 when the GBP/USD was 1.3233. Subsequently, the exchange rate has changed to 1.3342. If the position is closed now, what is the profit/loss arising from that trade? (USD, no cents)
If the direct quote for a U.S. investor for British pounds is $1.43/£, then the indirect quote for the U.S. investor would be ________ and the direct quote for the British investor would be ________. A) £0.699/$; £0.699/$ B) $0.699/£; £0.699/$ C) £1.43/£; £0.699/$ D) £0.699/$; $1.43/£ E) None of the Above
Let’s suppose you (USA dealer) imported one Earth Equipment machine from German dealer on March 1, 2017 at € 300,000 each, payable in 30 days. The exchange rate on March 1, 2017 was 1.16 US$/€. Then you sold the machine in the US market at US$350,000 in cash on March 29, 2017. On April 1, 2017, you paid to Italian car dealer at the exchange rate of 1.19 US$/€. What was profit or loss from this business in terms of US$? (Please assume all costs are included in price.) Group of answer choices -7000 -9200 -4500 -10200
The next problem is about covered interest rate parity. Assume that the home country is the Philippines, and a Filipino investor is mulling whether or not to invest P1 million in the US or in the PH. Bonds in either country mature in just 1 year. The initial parameters are as follows: iPH = 8% • Us = 12% et = P50/USD • et+1 = P55/USD Answer the following: • If the Filipino invests in a PH bond for 1 year, how much will she earn? • If the Filipino invests in a US bond for 1 year, how much will she earn in peso terms? . Is there a difference between the two values above? • How much did the peso depreciate/appreciate from time t to t + 1? • For the investor to be indifferent between investing here and abroad, she should engage in a forward exchange rate contract at what rate F₁?