Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1.) Roming Enterprises, a U.S- based firm, is considering a project in China to produce and sell compressors. It is a four-year project with an

1.) Roming Enterprises, a U.S- based firm, is considering a project in China to produce and sell compressors. It is a four-year project with an initial investment of USD 500,000. Each year, it would produce 800 units of the product at a direct cost of CNY 600 and sales price of CNY 2,000. Indirect expenses, not including depreciation, are expected to be CNY 120,000. Depreciation is straight line to zero. Taxes are 30 percent. Calculate USD cash flows and the NVP assuming a USD discount rate of 10 percent. The current spot rate is USDCNY = 6.50. Assume that currency values do not change during the life of the project, salvage is zero, and no working capital requirement exists.

2.)

4. A project in Hong Kong costs Hong Kong dollar (HKD) 100,000 and produces cash flows of HKD 40,000 per year for four years. Gruner, a Swiss firm using Swiss franc (CHF), is interested in adopting this project. If this had been a domestic project, the discount rate would have been 14 percent, Forecasts of inflation rates over the next four years indicate inflation of 2.5 percent in Switzerland and 5 percent in Hong Kong. Spot CHFHKD is 6.2 a. What is the appropriate discount rate for HKD cash flows? Using this discount rate, calculate the project NPV in HKD. b. Making appropriate assumptions and using data given in the problem, forecast future values of CHFHKD. c. Estimate CHF cash flows, and calculate the project NPV in CHF. Are HKD and CHF project NPVs different?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Finance Theory And Policy

Authors: Paul Krugman, Maurice Obstfeld, Marc Melitz

12th Global Edition

1292417005, 978-1292417004

More Books

Students also viewed these Finance questions

Question

Define Management by exception

Answered: 1 week ago

Question

Explain the importance of staffing in business organisations

Answered: 1 week ago

Question

What are the types of forms of communication ?

Answered: 1 week ago

Question

What is the education level of your target public?

Answered: 1 week ago

Question

What advertising media and promotional tactics will you use?

Answered: 1 week ago