Question
A New Zealand MNC is considering making a foreign direct investment in Canada. The Canadian government has offered the NZ company a concessionary loan of
A New Zealand MNC is considering making a foreign direct investment in Canada. The Canadian government has offered the NZ company a concessionary loan of CAD15,000,000 at a rate of 4 percent per annum. The market borrowing rates are 6 percent in New Zealand dollar, and 5.5 percent in Canadian dollar. The loan schedule calls for the principal to be repaid in three equal annual instalments. The current spot rate is NZD1.20/CAD; and the expected inflation rates are 3% in New Zealand, and 2.5% in Canada. What is the present value, in NZD, of the benefit of this concessionary loan?
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