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Baps Corporation is considering a $10 million investment in the establishment of a subsidiary in Scotland. Baps expects to sell their subsidiary for 2 million
- Baps Corporation is considering a $10 million investment in the establishment of a subsidiary in Scotland. Baps expects to sell their subsidiary for 2 million after five years. Their required rate of return is 10%. Listed below are the estimated cash flows over the projects lifetime:
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
Estimated Cash-Flows | (2 million) | 4 million | 5 million | 6 million | 5+2 mill |
Direct Quotation of | $1.00 | $1.10 | $1.20 | $1.25 | $1.20 |
Required Rate of Return | 10% | 10% | 10% | 10% | 10% |
- What is the net present value of the Scotland project? Whats the investment decision? (5+3)
- What if you must raise the required rate of return 15% due to increased country risk? (Compute the revised NPV). Does your decision change now? (5+2)
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