Question
In: Finance
Hammer Inc wants to expand into Spain. They are expecting the following cash flows over the...
Hammer Inc wants to expand into Spain. They are expecting the following cash flows over the next five years. Exchange rates and discount rates are also given.
Year 1 Year 2 Year 3 Year 4 Year 5
Expected CF (Euros): 2 million 2.2 million 2.5 mil 3 mil 4 mil
Exchange Rate (1 Euro): $1.40 $1.40 $1.30 $1.25 $1.20
Discount Rate 18% 18% 15% 15% 15%
What is the value of the project?
Solutions
Expert Solution
Value of project = PV of CFs from it.
| Year | CF in Euro ( in M) | EX Rate | CF in USD ( in M) | PVF | PV of CFs ( in USD M) |
| 1 | $ 2.00 | $ 1.40 | $ 2.80 | 0.8475 | $ 2.37 |
| 2 | $ 2.20 | $ 1.40 | $ 3.08 | 0.7182 | $ 2.21 |
| 3 | $ 2.50 | $ 1.30 | $ 3.25 | 0.6245 | $ 2.03 |
| 4 | $ 3.00 | $ 1.25 | $ 3.75 | 0.5431 | $ 2.04 |
| 5 | $ 4.00 | $ 1.20 | $ 4.80 | 0.4722 | $ 2.27 |
| Value of Project in USD Millions | $ 10.92 |
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0
1
2
3
4
5
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Investment
($35,000,000)
Net operating cash-flow
$6,000,000
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$30,000,000
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Years
0
1
2
3
4
5
Initial
Investment
($35,000,000)
Net operating cash-flow
$6,000,000
$8,000,000
$16,000,000
$20,000,000
$30,000,000
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Assignment Questions Q1: Carrefour is expecting its new center to generate the following cash flows: Years...
Assignment
Questions
Q1: Carrefour is expecting its new center to
generate the following cash flows:
Years
0
1
2
3
4
5
Initial
Investment
($35,000,000)
Net operating cash-flow
$6,000,000
$8,000,000
$16,000,000
$20,000,000
$30,000,000
a. Determine the payback for this new center. (1 mark)
b. Determine the net present value using a cost of capital of 15
percent. Should the project be accepted? (1 mark)
Q2. What is the EAC of two projects: project A,
which costs $150 and is expected...
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