Anderson International Limited is evaluating a project in Erewhon. The project will createthe following cash flows:YearCash Flow-$ 1,160,000335,000400,000295,000250,000123.4All cash flows will occur in Erewhon and are expressed in dollars. In an attempt toimprove its economy, the Erewhonian government has declared that all cash flowscreated by a foreign company are “blocked" and must be reinvested with thegovernment for one year. The reinvestment rate for these funds is 4 percent. If Andersonuses a required return of 7 percent on this project, what are the NPV and IRR of theproject? (A negative answer should be indicated by a minus sign. Do not roundintermediate calculations and round your answers to 2 decimal places, e.g., 32.16.Enter your IRR as a percent.)NPVIRR%

NPV can be calculated by following function in excel =NPV(rate,value1,[value2],…) + Initial…

Answered: Anderson International Limited is…

Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow -$ 1,160,000 335,000 400,000 295,000 250,000 1

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter14: Multinational Capital Budgeting

Section: Chapter Questions

Problem 18QA

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Suppose that Kittle Co. is a U.S. based MNC that is considering setting up a subsidiary in Singapore. Kittle would like this subsidiary to produce and sell guitars locally in Singapore, and needs assistance with capital budgeting. The duration of this project is four years, with a salvage value of $12,000,000. This salvage value would be paid by the government in Singapore to Kittle in exchange for ownership of the subsidiary. The expected exchange rate of the Singapore dollar of $0.50 over the life of the project. Kittle managers are worried about the uncertainty of the value of the Singapore dollar. While they expect that the exchange rate will be $0.50, they recognize that this value may fluctuate. Thus, they decide to S$3,000,000 in cash flows per year, while any additional cash flows beyond this threshold would not be hedged. The forward rate that Kittle will use to hedge the S$3,000,000 is $0.48. The following table shows a key subsection of Kittle's capital budgeting analysis…