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- The company plans a net investment of $7 million in the project. The current spot exchange rate is SF5.25 per dollar (SF = Swiss francs). Net cash flows for the expansion project are estimated to be SF5 million for 12 years and nothing thereafter. Based on its analysis of current conditions in Swiss capital markets, International Foods has determined that the applicable cost of capital for the project is 11 percent. Calculate the net present value of the proposed expansion project. Use Table IV to answer the questions below. Enter your answer in millions. For example, an answer of $1.20 million should be entered as 1.20, not 1,200,000. Round your answer to two decimal places. $Suppose the multinational Milton Asset Extraction (MAX) is considering an overseas project in a country with substantial political risk. MAX predicts that the project will yield USD100 million each year for two years. The initial cost of the project is USD145 million. In any given year there is a 13% chance that the project will be expropriated by the host country’s government. The discount rate for the project is 8%. Calculate the expected net presentThe US based company is investing in a 2-year project in Europe. The initial investment is €10,000. The expected cash inflow in the year one is €6,000 and in the year two is €8,000. The risk-free rate in US is 3% and Europe 2%. If the spot rate is $1.25/€ and the required rate of return of the project is 14%, calculate the NPV of the project in dollars. (A) The NPV of the project in dollars is $1,773.62. (B) The NPV of the project in dollars is $1.704.32. (C) The NPV of the project in dollars is $1,418.90. (D)The NPV of the project in dollars is $1,989,74
- The US based company is investing in a 2-year project in Europe. The initial investment is €10,000. The expected cash inflow in the year one is €6,000 and in the year two is €8,000. The risk-free rate in US is 3% and Europe 2%. If the spot rate is $1.25/€ and the required rate of return of the project is 14%, calculate the NPV of the project in dollars. (A) The NPV of the project in dollars is $1,773.62. (B) The NPV of the project in dollars is $1,704.32. (C) The NPV of the project in dollars is $1,418.90. (D) The NPV of the project in dollars is $1,989.74.5. The Western Publishing Company is faced with two mutually exclusive projects, A and B. According to the project A, the company is considering to expand its plant with an initial outlay of €40 million. The cash flow from the project A is estimated to be €8 million each year for the next 18 years. The project B will be less expensive, €14 million, and it will provide a net cash flow of €3.2 million each year for the same period as project A. The cost of capital of the company is 10%. a) Calculate the NPV and IRR for each project. b) Construct the NPV profiles for each project. c) Considering the above answers, which project should the company select?A project in Switzerland costs $6 million. Over the next three years, the project will generate total operating cash flows of $2 million, $3.5 million, and $4 million, respectively The required rate of return is 14 percent. What is the break-even salvage value of this project? O$4.92 million O$4.23 million O $2.42 million O $3.69 million K
- Read the following case carefully and answer the questions:A company is considering two mutually exclusive expansion plans. Plan A requires a Rs. 40 millionexpenditure on a long-scale integrated plant that would provide expected cash flows of Rs. 6.4 million per yearfor 20 years. Plan B requires a Rs.12 million expenditure to build a somewhat less efficient, more laborintensiveplant with expected cash flows of Rs. 2.72 million per year for 20 years. The company's WACC is10%. You are required to solve the following questions:a. Calculate each project's NPV and IRR. [6]b. Graph the NPV profiles for plan A and Plan B and approximate the crossover rate. [3]c. Calculate the crossover rate where the two projects' NPVs are equal. [3]d. Why is NPV better than IRR for making capital budgeting decisions that add to shareholder value?Explain.CreditCard Ltd, an credit card processor is considering the selection of one from two mutually exclusive investment projects (A and B), each with an estimated five-year life. The Project A requires initial investment of £1,000,000 and is forecast to generate annual cash flows of £300,000. Its estimated residual value after five years is £100,000. The Project B costs £120,000 with a forecast scrap value of £10,000. The Project B should generate annual cash flows of £40,000. The company operates a straight-line depreciation policy and discounts cash flows at 15 per cent p.a. CreditCard Ltd uses four investment appraisal techniques: payback period, net present value, internal rate of return and accounting rate of return (i.e. average accounting profit to average value of investment ARR of Project B rounded to a whole number is: A. 21% B. Has multiple solutions C. 18% D. 28%A Canadian firm is evaluating an investment in Indonesia. The project costs 580 billion Indonesian rupiah and it is expected to produce an income of 280 billion Indonesian ruplah a year in real terms for each of the next 3 years. The expected inflation rate in Indonesia is 11% per year and the firm estimates that an appropriate discount rate for the project would be about 5% above the risk-free rate of interest. Calculate the net present value of the project in dollars. Assume a spot exchange rate of $.000112/Rupiah. The interest rate is about 15% in Indonesia and 4% in Canada (Round your answer to 2 decimal places. Enter your answer in millions of Canadian dollers.) NPV of the project
- CreditCard Ltd, an credit card processor is considering the selection of one from two mutually exclusive investment projects (A and B), each with an estimated five-year life. The Project A requires initial investment of £1,000,000 and is forecast to generate annual cash flows of £300,000. Its estimated residual value after five years is £100,000. The Project B costs £120,000 with a forecast scrap value of £10,000. The Project B should generate annual cash flows of £40,000. The company operates a straight-line depreciation policy and discounts cash flows at 15 per cent p.a. CreditCard Ltd uses four investment appraisal techniques: payback period, net present value, internal rate of return and accounting rate of return (i.e. average accounting profit to average value of investment). A. According to the investment advice using payback period Project A should be preferred B. According to the investment advice using payback period Project B should be…CreditCard Ltd, an credit card processor is considering the selection of one from two mutually exclusive investment projects (A and B), each with an estimated five-year life. The Project A requires initial investment of £1,000,000 and is forecast to generate annual cash flows of £300,000. Its estimated residual value after five years is £100,000. The Project B costs £120,000 with a forecast scrap value of £10,000. The Project B should generate annual cash flows of £40,000. The company operates a straight-line depreciation policy and discounts cash flows at 15 per cent p.a. CreditCard Ltd uses four investment appraisal techniques: payback period, net present value, internal rate of return and accounting rate of return (i.e. average accounting profit to average value of investment). IRR for Project A rounded to full percentage number is: (Hint: use 20% as the second discount rate) A. 10% B. 15% C. 17% D. 21%CreditCard Ltd, an credit card processor is considering the selection of one from two mutually exclusive investment projects (A and B), each with an estimated five-year life. The Project A requires initial investment of £1,000,000 and is forecast to generate annual cash flows of £300,000. Its estimated residual value after five years is £100,000. The Project B costs £120,000 with a forecast scrap value of £10,000. The Project B should generate annual cash flows of £40,000. The company operates a straight-line depreciation policy and discounts cash flows at 15 per cent p.a. CreditCard Ltd uses four investment appraisal techniques: payback period, net present value, internal rate of return and accounting rate of return (i.e. average accounting profit to average value of investment). A. NPV of Project A is 5,600 B. NPV of Project A is 55,300 C. NPV of Project A is 49,700 D. NPV of Project A is 19,050
