Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 31, Problem 3P
Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in the euro area. You are in Etemadi’s
You know that the spot exchange rate is S = $1.15/ €. In addition, the risk-free interest rate on dollars is 4% and the risk-free interest rate on euros is 6%.
Assume that these markets are internationally integrated and the uncertainty in the free cash flows is not correlated with uncertainty in the exchange rate. You determine that the dollar WACC for these cash flows is 8.5%. What is the dollar present value of the project? Should Etemadi Amalgamated undertake the project?
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Lakonishok Equipment has an investment opportunity in Europe. The project costs €20,065,563 and is expected to produce cash flows of €3,524,370 in Year 1, €4,549,121 in Year 2, and €5,590,740 in Year 3. The current spot exchange rate is $1.38/€ and the current risk-free rate in the United States is 3%, compared to that in Europe of 3.08%. The appropriate discount rate for the project is estimated to be 11.07%, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €13,733,917. What is the NPV of the project?
Chapter 31 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 31.1 - Prob. 1CCCh. 31.1 - What implication do internationally integrated...Ch. 31.2 - Prob. 1CCCh. 31.2 - When do these two methods give the same NPV of the...Ch. 31.3 - Prob. 1CCCh. 31.3 - Prob. 2CCCh. 31.4 - Prob. 1CCCh. 31.4 - Prob. 2CCCh. 31.5 - What conditions cause the cash flows of a foreign...Ch. 31.5 - Prob. 2CC
Ch. 31 - You are a U.S. investor who is trying to calculate...Ch. 31 - Mia Caruso Enterprises, a U.S. manufacturer of...Ch. 31 - Etemadi Amalgamated, a U.S. manufacturing firm, is...Ch. 31 - Prob. 4PCh. 31 - You work for a U.S. firm, and your boss has asked...Ch. 31 - Prob. 6PCh. 31 - Prob. 7PCh. 31 - Prob. 8PCh. 31 - Prob. 9PCh. 31 - Prob. 10PCh. 31 - Prob. 11PCh. 31 - Prob. 12PCh. 31 - Assume that in the original Ityesi example in...
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