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ABC, Inc., a US multinational company, is planning to make a fixed direct investment in Denmark. The Danish government has offered ABC a concessionary loan
ABC, Inc., a US multinational company, is planning to make a fixed direct investment in Denmark. The Danish government has offered ABC a concessionary loan of DKK 30,000,000 at a rate of 4% per annum. The normal borrowing rate is 6% in dollars and 5.5% in Danish krone. The loan schedule calls for the principal to be repaid in three equal annual installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK5.60/$1.00 and the expected inflation rate is 3% in the U.S. and 2.5% in Denmark.
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