Question
Suppose that Apple is analyzing a project of opening a plant in Malaysia to build its smart electric cars. Apple projects cash flows of (Malaysian
Suppose that Apple is analyzing a project of opening a plant in Malaysia to build its smart electric cars. Apple projects cash flows of (Malaysian Ringgit) MR 10 million for 4 years and a Terminal value of 28 M as Apple doesnt intend to stay in the car industry for long, instead Apple will sell the project at the end of year 4 at a cash flow of 28 M. The initial investment is evaluated at MR25 million. The Financial manager collected the following data:
- Exchange rate S0 ($/MR) is $0.25
- Expected inflation rate in Malaysia is 4%
- Expected inflation rate in the US is 2%
- The WACC (discount rate to be used for US local investment is 15%
- Calculate the NPV of this project using the home country approach ($NPV)
2. What should be the appropriate discount rate to use in the foreign country approach?
3.Calculate the NPV using the foreign country approach (MR NPV)
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