A project in South Korea requires an initial investment of 2 billion South Korean won. The project
Question:
A project in South Korea requires an initial investment of 2 billion South Korean won. The project is expected to generate net cash flows to the subsidiary of 3 billion and 4 billion won in the 2 years of operation, respectively. The project has no salvage value. The current value of the won is 1,100 won per U.S. dollar, and the value of the won is expected to remain constant over the next 2 years.
a. What is the NPV of this project if the required rate of return is 13 percent?
b. Repeat the question, except assume that the value of the won is expected to be 1,200 won per U.S. dollar after 2 years. Further assume that the funds are blocked and that the parent company will only be able to remit them back to the United States in 2 years. How does this affect the NPV of the project?
Salvage ValueSalvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Step by Step Answer:
a The NPV is 344313999 b A situation where the funds are blocked and th...View the full answer
