9780357088562/cfi/6/704/464/124/4@0:100 exchange rate at the end of the year is expected to be S1.29 per pound, and the pound is expected to depreciate 5% against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 10% a year indefinitely. The parent U.S. corporation owns 10 million shares of the subsidiary. What is the present value in dollars of its equity ownership of the subsidiary? Assume a cost of equity capital of 11% for the subsidiary. 19-17 FOREIGN CAPITAL BUDGETING Sandrine Mdchinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a 1- year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of S2.000 and a cash inflow the following year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10% currently. I US dollar will buy 096 Swiss franc la addition, 1-year risk-free securities in the United States are yielding 3%, while similar securities in Switzerland are yielding 1.50%. a. If this project was instead undertaken by a similar U.S.-based company with the same risk- adjusted cost of capital, what would be the net present value and rate of return generated by this project? b. What is the expected forward exchange rate I year from now? :. If Sandrine undertakes the project, what is the net present vahue and rate of return of the project for Sandrine? Comprehensive/Spreadsheet Problem 1915 MULTINATIONAL FINANCIAL MANAGEMENT YOhe Telec ltinational comoration that neodisces and distribntes telecommmnication eurhisoa^ Sys Tech-1-844-9 manufacturing company. Currently, Sandrine's financial planners are considering undertaking a 1- year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,000 and a cash inflow the following year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10%. Currently, I U.S. dollar will buy 0.96 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 3%, while similar securities in Switzerland are yielding 1.50%. a. If this project was instead undertaken by a similar U.S-based company with the same risk- adjusted cost of capital, what would be the net present value and rate of return g this project? b. What is the expected forward exchange rate I year from now? c. If Sandrine undertakes the project, what is the net present value and rate of return of the project for Sandrine? I, what would be the net present value and rate of returm generated by 9780357088562/cfi/6/704/464/124/4@0:100 exchange rate at the end of the year is expected to be S1.29 per pound, and the pound is expected to depreciate 5% against the dollar each year for an indefinite period. The dividend (in pounds) is expected to grow at 10% a year indefinitely. The parent U.S. corporation owns 10 million shares of the subsidiary. What is the present value in dollars of its equity ownership of the subsidiary? Assume a cost of equity capital of 11% for the subsidiary. 19-17 FOREIGN CAPITAL BUDGETING Sandrine Mdchinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a 1- year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of S2.000 and a cash inflow the following year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10% currently. I US dollar will buy 096 Swiss franc la addition, 1-year risk-free securities in the United States are yielding 3%, while similar securities in Switzerland are yielding 1.50%. a. If this project was instead undertaken by a similar U.S.-based company with the same risk- adjusted cost of capital, what would be the net present value and rate of return generated by this project? b. What is the expected forward exchange rate I year from now? :. If Sandrine undertakes the project, what is the net present vahue and rate of return of the project for Sandrine? Comprehensive/Spreadsheet Problem 1915 MULTINATIONAL FINANCIAL MANAGEMENT YOhe Telec ltinational comoration that neodisces and distribntes telecommmnication eurhisoa^ Sys Tech-1-844-9 manufacturing company. Currently, Sandrine's financial planners are considering undertaking a 1- year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,000 and a cash inflow the following year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10%. Currently, I U.S. dollar will buy 0.96 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 3%, while similar securities in Switzerland are yielding 1.50%. a. If this project was instead undertaken by a similar U.S-based company with the same risk- adjusted cost of capital, what would be the net present value and rate of return g this project? b. What is the expected forward exchange rate I year from now? c. If Sandrine undertakes the project, what is the net present value and rate of return of the project for Sandrine? I, what would be the net present value and rate of returm generated by