ASSIGNMENT QUESTION:

FM Co is a Zambian firm considering undertaking a foreign project whose cash flows are in

Euros. The investment will have a life of $10$ years with a nil scrap value at the end of the project$$s

life. The initial cost is $800,000.$ The company uses a straight$-$line policy of depreciation. The

other dollar net cash flows per year over the project$$s life are:

Year Net Cash flows $$

$1(20,000)$

$2(40,000)$

$3400,000$

$4350,000$

$5(50,000)$

$6250,000$

$7240,000$

$8320,000$

$9340,000$

$10280,000$

The dollar cost of capital and the reinvestment rates are $15\mathrm{.}4\%$ per year and $17\mathrm{.}5\%$ per annum

respectively. The spot exchange rate between kwacha and the euros is K$23\mathrm{.}142$ per $1.$ The

above project is tagged to be the first green project undertaken by FM company which likely to

change the fortunes of the organization when successfully implemented.

REQUIRED:

a$)$ Calculate the modified internal rate of return $($MIRR$)$ of the above projects and discuss

the implications of undertaking such an investment.

b$)$ Determine the kwacha net present value $($NPV$)$ of the above project and highlight the

challenges that FM company is likely to face as the pursue this investment.

c$)$ Recommend any TWO hedging strategies that FM Co can use to cushion the

company$$s exposure to currency risk due to the above project.

d$)$ Discuss how the following non$-$financial factors would affect the implementation of a

foreign project like FM$$s green project.

i$.$ Religion and culture of the host country.

ii$.$ Political landscape in the host country.