7. International capital budgeting

One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies.

Consider this case:

Pellegrini Southern Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project:

	The project requires an investment of AU$915,000 today and is expected to generate cash flows of AU$1,300,000 at the end of each of the next two years.
	The current exchange rate of the U.S. dollar against the Australian dollar is $0.7823 per Australian dollar (AU$).
	The one-year forward exchange rate is $0.8102 / AU$, and the two-year forward exchange rate is $0.8412 / AU$.
	The firms weighted average cost of capital (WACC) is 10%, and the project is of average risk.

What is the dollar-denominated net present value (NPV) of this project?

$1,431,841

$1,317,294

$1,374,568

$1,145,473

There are three major types of international credit markets. Read the following statement and then indicate which type of international credit market is being described.

Canoqola Domain Inc., a British company, issued U.S. dollardenominated bonds in Chicago to fund its U.S. operations.

Foreign bond

Eurobond

Eurocredit