please solve complete in 30 minute
Drof Motors (DROF) is a large U.S. firm. It aims to expand its operations to South Africa (SA) and to stay over there forever. An analysis shows that the all-equity value of the venture is estimated to be R(and) 3,000 million, at a current foreign exchange rate of R15 = $1. Actually, there is a 50% chance that the Rand will rise and also a 50% chance that it will fall, keeping the expected value of the venture the same. With an additional high risk project, costing R60 million, DROF could even earn additional operational cash flows of R80 million in case the Rand rises and R50 million in case it falls. The RUMP Bank has a positive outlook on the venture and offers the firm a perpetual R500 million loan that costs 10% before taxes, at a tax rate of 28%. If the additional high-risk project is taken up, the RUMP Bank will provide another R70 million loan, knowing that the project will be run as a separate legal entity with some local equity involvement. QUESTIONS: a) b) c) d) Calculate the expected value of DROF's venture in both Rand and dollars, without the high-risk project, if the R500 million loan is accepted. Why might DROF not accept the original R500 million loan? Use three arguments. Should DROF managers, using an SA venture view, accept the high-risk project? Should DROF managers, using an SA bank view, accept the high-risk project? Drof Motors (DROF) is a large U.S. firm. It aims to expand its operations to South Africa (SA) and to stay over there forever. An analysis shows that the all-equity value of the venture is estimated to be R(and) 3,000 million, at a current foreign exchange rate of R15 = $1. Actually, there is a 50% chance that the Rand will rise and also a 50% chance that it will fall, keeping the expected value of the venture the same. With an additional high risk project, costing R60 million, DROF could even earn additional operational cash flows of R80 million in case the Rand rises and R50 million in case it falls. The RUMP Bank has a positive outlook on the venture and offers the firm a perpetual R500 million loan that costs 10% before taxes, at a tax rate of 28%. If the additional high-risk project is taken up, the RUMP Bank will provide another R70 million loan, knowing that the project will be run as a separate legal entity with some local equity involvement. QUESTIONS: a) b) c) d) Calculate the expected value of DROF's venture in both Rand and dollars, without the high-risk project, if the R500 million loan is accepted. Why might DROF not accept the original R500 million loan? Use three arguments. Should DROF managers, using an SA venture view, accept the high-risk project? Should DROF managers, using an SA bank view, accept the high-risk project
