Quantitative Problem: International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,850 and a cash inflow the following year of $3,900. IMC estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 9.0 Swedish kronas. In addition, 1-year risk-free securities in the United States are yielding 2%, while similar securities in Sweden are yielding 1%. a. If the interest parity holds, what is the forward exchange rate of Swedish kronas per U.S. dollar? Do not round intermediate calculations. Round your answer to four decimal places. Swedish kronas per U.S. dollar b. If IMC undertakes the project, what is the net present value and rate of return of the project for IMC in home currency? Do not round intermediate calculations. Round your answers to two decimal places. NPV: Swedish kronas Rate of return: %

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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am. 124.

Quantitative Problem: International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners are considering
undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,850 and a cash inflow the
following year of $3,900. IMC estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 9.0 Swedish kronas. In addition, 1-year risk-free
securities in the United States are yielding 2%, while similar securities in Sweden are yielding 1%.
a. If the interest parity holds, what is the forward exchange rate of Swedish kronas per U.S. dollar? Do not round intermediate calculations. Round your answer to four
decimal places.
Swedish kronas per U.S. dollar
b. If IMC undertakes the project, what is the net present value and rate of return of the project for IMC in home currency? Do not round intermediate calculations. Round
your answers to two decimal places.
NPV:
Swedish kronas
Rate of return:
%
Transcribed Image Text:Quantitative Problem: International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,850 and a cash inflow the following year of $3,900. IMC estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 9.0 Swedish kronas. In addition, 1-year risk-free securities in the United States are yielding 2%, while similar securities in Sweden are yielding 1%. a. If the interest parity holds, what is the forward exchange rate of Swedish kronas per U.S. dollar? Do not round intermediate calculations. Round your answer to four decimal places. Swedish kronas per U.S. dollar b. If IMC undertakes the project, what is the net present value and rate of return of the project for IMC in home currency? Do not round intermediate calculations. Round your answers to two decimal places. NPV: Swedish kronas Rate of return: %
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