Question
Dryden Co is a U.S. firm that plans a foreign project in which it needs $8,000,000 as an initial investment. The project is expected to
Dryden Co is a U.S. firm that plans a foreign project in which it needs $8,000,000 as an initial investment. The project is expected to generate cash flows of 10 million euros in 1 year after the complete repayment of the loan (including the loan interest and principal). The project has zero salvage value and is terminated at the end of 1 year. Dryden considers financing this project with:
A. Equity:
B. All U.S. debt denominated in dollars provided by U.S banks:
C. All debt (loans) denominated in euros provided by European banks:
D. Half of funds obtained from loans denominated in Euros from loans denominated in dollars:
Which form of financing will cause the projects NPV to be the least sensitive to exchange rate risk?
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