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The next 3 questions are based on the following information. You work for a firm whose home currency is the South Korean Won (KRW) and
The next 3 questions are based on the following information. You work for a firm whose home currency is the South Korean Won (KRW) and that is considering a foreign investment. The investment yields expected after-tax Swedish Krone (SEK) cash flows (in millions) as follows: -SEK486 in Year 0, and SEK205 in each of the 3 years of the life of the project. The expected rates of inflation in each country are constant per year: 7.50% in Korea, and 4.50% in Sweden. From the project's perspective the required return is 16.53%, while from the parent's perspective, the required rate of return is 9.50%. The spot exchange rate is KRW127.62/SEK.
question 1: What is the NPV of the project from the project's perspective? a. -KRW3,614.95 million O b. -KRW3,772.82 million Oc. KRW9,895.36 million O d. KRW6,011.89 million O e. None of the options in this question are correct. Time left 0:25:16
question 2: What is the NPV of the project from the parent company's perspective?
a. KRW7,337.53 Million
b. - KRW541.04Million
c. KRW57.495Million
d. KRW0.451 million
e. None of the options is this question are correct
question 3: what is the correct course of action for the managers of the firm?
a. accept the project
b. accept the project. however the firm should try to find a way to hedge the currency risk now to capture the NPV. finance in the local currency, use currency forwards and sell the project to a local investor
c. reject the projext. it is only adding value from the parent's perspective because of forecast favourable movements in the exchange rate
d. reject the project. it is not financially viable from both the projrct's perspective and parent's perspective.
e. there is not enough info to infer the correct course of action
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