Question
UVW Group is undertaking a 4-year project in Japan with an initial cost of USD 30 Million. It expects annual OCF of JPY 1.2 Billion
UVW Group is undertaking a 4-year project in Japan with an initial cost of USD 30 Million. It expects annual OCF of JPY 1.2 Billion but no Salvage Value in year 4. The Required Return is 12%.
UVW will fund the project with a combination of US-sourced funds and a loan from a Japanese bank in the amount of JPY 1 Billion, to be paid back in 4 equal annual installments of JPY 275 Million.
UVW projects a steady exchange rate of JPY 100 / USD.
In this case, the use of Japanese-sourced debt had all of the following benefits EXCEPT -
Group of answer choices:
A) Reduction of the total initial cost of the project
B) Reduction of exchange rate risk
C) Reduction of political risk
D) Lower cost than the firm's 12% cost of funds
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