Farbucks is thinking of expanding to South Korea. The current indirect rate for dollars and South Korean won is 1,008 won per dollar. The expected inflation rate in South Korea should hover near 1.3% for the next five years. The expected U.S. inflation rate should stay around 3.7%. The discount rate for expanding is 14% for Farbucks. Given the following projected cash flows for the expansion project, use the domestic NPV approach to determine whether Farbucks should expand to South Korea.

Year 0: initial investment costs of 85,000,000 won per coffee shop

Year 1 cash flow:25,000,000 won

Year 2 cash flow:30,000,000 won

Year 3 cash flow:70,000,000 won

Year 4 cash flow:80,000,000 won

Year 5 cash flow:40,000,000 won

Domestic currency approach in multinational capital budgeting consists of the following steps:

Step 1: Calculate the forward exchange rates.

Step 2: Convert all cash flows in foreign currency into dollars using current and forward exchange rates.

Step 3: Convert all future dollars into present value with the domestic discount rate.

Step 4: Add the net present value of the outflow and inflow.

Step 5: Accept the project if its net present value (NPV) is positive and reject if negative.

First, complete step 1 by calculating the forward rates.

The current indirect exchange rate is 1,014 for dollars and South Korean won. The inflation rate in South Korea is expected to hover near 0.9%

for the next five years and the U.S. inflation rate is expected to stay around 3.4%. What is the 1-year forward indirect rate for dollars and South Korean won?

won per $(Round to four decimal places.)

What is the 2-year forward indirect rate for dollars and South Korean won?

won per $(Round to four decimal places.)

What is the 3-year forward indirect rate for dollars and South Korean won?

won per $(Round to four decimal places.)

What is the 4-year forward indirect rate for dollars and South Korean won?

won per $(Round to four decimal places.)

What is the 5-year forward indirect rate for dollars and South Korean won?

won per $(Round to four decimal places.)

Second, complete step 2 by converting the cash flows into dollars.

What is the dollar amount of the initial investment, CF0?

$(Round to the nearest cent.)

What is the dollar amount of cash flow in year 1, CF1?

$ (Round to the nearest cent.)

What is the dollar amount of cash flow in year 2, CF2?

$(Round to the nearest cent.)

What is the dollar amount of cash flow in year 3, CF3?

$(Round to the nearest cent.

)What is the dollar amount of cash flow in year 4, CF4?

$(Round to the nearest cent.)

What is the dollar amount of cash flow in year 5, CF5?

$(Round to the nearest cent.)

Third, complete step 3 by calculating the present value of the cash flows.

If the discount rate in the United States for the expansion project is 13%, what is the present value of CF1?

$(Round to the nearest cent.)

What is the present value of CF2?

$ (Round to the nearest cent.)

What is the present value of CF3?

$(Round to the nearest cent.)

What is the present value of CF4?

$(Round to the nearest cent.)

What is the present value of CF5?

$(Round to the nearest cent.)

Finally, complete steps 4 and 5 by applying the NPV decision rule.

Should Farbucks expand to South Korea?