1. When an MNC engages in restructuring, it affects the structure of its assets, which will ultimately affect the present value of its cash flows.

The initial dollar outlay (IO_U.S.) is determined by the acquisition price in foreign currency (IO_f) and the spot price of the foreign currency (S).

The estimated foreign currency cash flows that are to be converted must account for any taxes or blocked-funds restrictions imposed by the host government.

The dollar amount of cash flows to the U.S. firm is determined by the foreign currency cash flows (CF_f,t) per period and the spot rate at that time (S_t)

The MNC you work for is considering a DFI in Brazil where the exchange rate is US$0.23697 for 1 Brazilian Real. The acquisition price is BR 422,000,000 and the cost of capital is 10%. The cash flows each year for the succeeding 4 years will be as follows: Year 1; BR211,000,000, Year 2; BR168,800,000, Year 3; BR 126,600,000 and Year 4; BR 42,200,000. There is no salvage value.

Convert the figures back into US dollars and then calculate the NPV and the IRR of this project. Should your company accept this project? Show numbers to back your decision.

NPV =-10,+(1+k) + (1+k)" SV t=1 where 10, = initial outlay needed to acquire target CF, = cash flow generated by target k = required rate of return on acquisition SV, = salvage value of target n= time when the target will be sold by acquirer