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Use the following information to answer question 3 7 . 0 1 2 3 4 Remitted by subsidiary (100% of net cash flow) 10,000,000.00 12,000,000.00

Use the following information to answer question 3 7.

0

1

2

3

4

Remitted by subsidiary (100% of net cash flow)

10,000,000.00

12,000,000.00

15,000,000.00

18,000,000.00

Withholding tax on remitted funds (10%)

Remitted after withholding tax

Salvage value

10,000,000

Exchange rate

$0.78

$0.78

$0.78

$0.78

cash flow to parent

Present Value of parent cash flow (15%)

Initial Investment by parent

30,000,000.00

Cumulative NPV

3. Calculate the NPV of this investment. Should the corporation invest in this project?
4. If the exchange rate changes over the time; Year 1: $0.70, Year 2: $0.73, Year 3: $0.75, Year 4: $0.77, calculate the NPV of the investment. Should the corporation invest in this project?
5. If the exchange rate changes over the time; Year 1: $0.82, Year 2: $0.80, Year 3: $0.78, Year 4: $0.75, calculate the NPV of the investment. Should the corporation invest in this project?
6. If the corporation decides to hedge its cash flow (remitted cash flow after withholding) of 5,000,000 per year. The forward rate is $0.75. The spot rate for each year is $0.78. What is the NPV for the corporation?
7. Based on question 6, if the spot rate changes over the time to; Year 1: $0.79, Year 2: $0.77. Year 3: $0.80, and Year 4: $0.70, what is the NPV for the corporation?

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