Ch 17: 7. International capital budgeting

One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies. Consider this case:

Sacramone Products Co. is a U.S. firm evaluating a project in Australia. You have the following information about the project:

	The project requires an investment of AU$915,000 today and is expected to generate cash flows of AU$1,000,000 at the end of each of the next two years.
	The current exchange rate of the U.S. dollar against the Australian dollar is $0.7877 per Australian dollar (AU$).
	The one-year forward exchange rate is $0.8109 / AU$, and the two-year forward exchange rate is $0.8455 / AU$.
	The firms weighted average cost of capital (WACC) is 9%, and the project is of average risk. 1: What is the dollar-denominated net present value (NPV) of this project? A: $881,807 B: $845,065 C: $734,839 D: $661,355 2: There are three major types of international credit markets. Read the following statement and then indicate which type of international credit market is being described. Nitreca Chemicals Inc. took out a 10-year floating rate bank loan with an interest rate tied to LIBOR to finance a multinational project. A; Foreign bond B: Eurocredit C: Eurobond