Briefly describe special problems that occur in multinational capital budgeting, and describe the process for evaluating a

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Briefly describe special problems that occur in multinational capital budgeting, and describe the process for evaluating a foreign project. Now consider the following project: A U.S. company has the opportunity to lease a manufacturing facility in Japan for 2 years. The company must spend ¥1 billion initially to refurbish the plant. The expected net cash flows from the plant for the next 2 years, in millions, are CF1 = ¥500 and CF2 = ¥800. A similar project in the United States would have a risk-adjusted cost of capital of 10%. In the United States, a 1-year government bond pays 2% interest and a 2-year bond pays 2.8%. In Japan, a 1-year bond pays 0.05% and a 2-year bond pays 0.26%. What is the project’s NPV?

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Corporate Finance A Focused Approach

ISBN: 978-1439078082

4th Edition

Authors: Michael C. Ehrhardt, Eugene F. Brigham

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