Carambola de Honduras. Slinger$$ Wayne, a$$ U$.$S$.-$based private equity$$ firm, is trying to determine what it should pay for a tool manufacturing firm in Honduras named Carambola. Slinger Wayne estimates that Carambola will generate a free cash flow of $13$ million Honduran lempiras$($Lp$)$ next$$ year, and that this free cash flow will continue to grow at a constant rate of $6\mathrm{.}5\%$ per annum indefinitely.

A private equity firm like Slinger$$ Wayne, however, is not interested in owning a company for$$ long, and plans to sell Carambola at the end of three years for approximately $10$ times$$ Carambola's free cash flow in that year. The current spot exchange rate is Lp$14\mathrm{.}8813/$$$,$ but the Honduran inflation rate is expected to remain at a relatively high rate of $16\mathrm{.}5\%$ per annum compared to the U$.$S$.$ dollar inflation rate of only $5\mathrm{.}0\%$ per annum. Slinger Wayne expects to earn at least a $21\mathrm{.}5\%$ annual rate of return on international investments like Carambola.

a$.$ What is Carambola worth if the Honduran lempira were to remain fixed over the$$ three$-$year investment$$ period?

b$.$ What is Carambola worth if the Honduran lempira were to change in value over time according to purchasing power$$ parity?

Question content area bottom

Part $1$

a$.$ Calculate the free cash flows in Honduran lempiras$($Lp$)$ below:$($Round to the nearest whole$$ number.$)$

Year $0$

Year $1$

Year $2$

Year $3$

Carambola's expected free cash flow

Lp

$13,000,000$

Lp

$13845000$

Lp

$14744925$

Expected sale value in year $3$

Lp

$147449250$

Total expected cash flow

Lp

$13000000$

Lp

$13845000$

Lp

$162194175$

Expected exchange rate $($Lp$/$$$)$

$14\mathrm{.}8813$

Carambola's expected cash flow in US$

Part $2$

Assume that the Honduran lempira were to remain fixed over the$$ three$-$year investment period. Calculate the free cash flows in U$.$S$.$ dollars$$ below:$($Round to the nearest$$ dollar.$)$

Year $0$

Year $1$

Year $2$

Year $3$

Carambola's expected free cash flow

Expected sale value in year $3$

Total expected cash flow

Expected exchange rate $($Lp$/$$$)$

$14\mathrm{.}8813$

$14\mathrm{.}8813$

$14\mathrm{.}8813$

$14\mathrm{.}8813$

Carambola's expected cash flow in US$

$

$

$

Part $3$

If Slinger Wayne expects to earn at least a $21\mathrm{.}5\%$ annual rate of return on international$$ investments, the value of Carambola today is $$$

$$

enter your response here. $($Round to the nearest$$ dollar.$)$

Part $4$

b$.$ Assume that the Honduran lempira were to change in value over time according to purchasing power parity. Calculate the spot exchange rates for the next three years$$ below:$($Round to four decimal$$ places.$)$

Year $0$

Year $1$

Year $2$

Year $3$

Carambola's expected free cash flow

Lp

$13,000,000$

Expected sale value in year $3$

Total expected cash flow

Expected exchange rate $($Lp$/$$$)$

$14\mathrm{.}8813$

Carambola's expected cash flow in US$

Part $5$

Calculate the free cash flows in U$.$S$.$ dollars$$ below:$($Round to the nearest$$ dollar.$)$

Year $0$

Year $1$

Year $2$

Year $3$

Carambola's expected free cash flow

Lp

$13,000,000$

Expected sale value in year $3$

Total expected cash flow

Expected exchange rate $($Lp$/$$$)$

$14\mathrm{.}8813$

Carambola's expected cash flow in US$

$

$

$

Part $6$

If Slinger Wayne expects to earn at least a $21\mathrm{.}5\%$ annual rate of return on international$$ investments, the value of Carambola today is $$$

$$

enter your response here. $($Round to the nearest$$ dollar.$)$