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A US multinational corporation has operations in Bolivia through which it plans to sell a new product of 500,000 cans of beans per year
A US multinational corporation has operations in Bolivia through which it plans to sell a new product of 500,000 cans of beans per year for the next 3 years, at a price of BOB 4 per can after incurring a variable cost of BOB 2.50 per can. The company will also incur a fixed cost of BOB 120,000 per year. The company has invested BOB 900,000 today in manufacturing equipment for its Bolivian operations, which will be depreciated at $300,000 annually over its 3-year life. The corporation's required rate of return (WACC) is 20% and has a tax rate of 25%. The spot rate was BOB 6.91/$ before it unexpectedly changed to BOB 7.25/$. What is the value of the Bolivian operations prior to the unexpected change in the spot rate assuming that the operations have a 3-year life only? (round to the nearest dollar) What is the value of the Bolivian operations after the unexpected change in the spot rate assuming that the operations have a 3-year life only? (Round to the nearest dollar) What is the foreign exchange operating gain/loss resulting from the unexpected change in the spot rate? (Round to the nearest dollar)
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