Question
Hi there would really appreciate help on the below: ABC is an Australian firm. It looks to establish operations in NZ. It expects the following
Hi there would really appreciate help on the below:
ABC is an Australian firm. It looks to establish operations in NZ. It expects the following cash flows in NZD. The cash flows are as follows: Yr 0 = -8, Yr 1 = 13.2, Yr 2 = 17.7, Yr 3 = 12 and Yr 4 = 18.8.
The required rate of return for the project of this risk in Australia is 1.1 and NZ is 2.4. The current spot exchange rate in NZD/AUD is 0.6. Assume the corporate tax rate is the same in both countries and is 30%. The risk free rate in Australia is 2.3 and in NZ is 3.9. Assume that PPP holds and inflation in Australia is 4.4 and in NZ is 2.2.
Suppose that 24% of the funds must be retained in NZ until one year after the project finishes. The funds earn no return. What is the NPV of the project in AUD?
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