Question
Suppose that Bosa Co., a U.S.-based MNC, has been offered a project by the government of Brazil. The project lasts for a period of one
Suppose that Bosa Co., a U.S.-based MNC, has been offered a project by the government of Brazil. The project lasts for a period of one year and would require a 1,000,000 Brazilian real (R) investment in the project immediately. The spot rate of the real is currently $0.25, however Bosa forecasts that the real will depreciate to $0.20 by next year.
In order to pay for the initial investment, Bosa would need to borrow dollars at an interest rate of 13.00%. The project is expected to generate cash flows of R1,400,000.
Complete the second column of the table, filling in the cash interest payment from Bosa, the projected project cash flow to Bosa, and the net cash flow for year 1.
Bosa Dollar Cash Flows | ||
---|---|---|
Year 0 | Year 1 | |
Initial Investment | $250,000 | |
Interest Payment |
| |
Project Cash Flow | ||
Net Cash Flow | $250,000 |
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