Question
Your company is considering an investment in the euro area. The expected cash flows in Euros are uncorrelated to the spot exchange rate: Free Cash
- Your company is considering an investment in the euro area. The expected cash flows in Euros are uncorrelated to the spot exchange rate:
| Free Cash Flow million euros | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 |
|
| -25 | 12 | 14 | 15 | 15 |
The project has similar dollar risk to the companys other projects. The company knows that its overall dollar WACC is 9.5%, so it feels comfortable using this WACC for the project. The risk-free interest rate on dollars is 4.5% and the risk-free interest rate on euros is 7%. The company is willing to assume that the capital markets in the United States and the euro area are internationally integrated.
- What is the companys euro WACC?
- What is the NPV of the project in euros?
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Financial Management Theory And Practice
Authors: Prasanna Chandra
8th Edition
0071078401, 978-0071078405
