In: Finance
The U.S. multinational manufacturing firm, Greenwich Industries, is debating whether to invest in a 2-year project in Japan. The project’s expected cash flows consist of an initial investment of ¥1 million with cash inflows of ¥ 400,000 in Year 1 and ¥ 800,000 in Year 2. The risk-adjusted cost of capital for this project is 11%. The current exchange rate is 115 yen per dollar.
Risk-free interest rates in the United States and Japan are:
U.S. government bond rates:
• 1-year bond 2.4%
• 2-year bond 3.0%
Japan government bond rates:
• 1-year bond 0.15%
• 2-year bond 0.35%
Which of the following answers is CORRECT about the expected future exchange rates 1 year from now and 2 years from now?
117.58 dollar per yen for one year rate and 121.15 dollar per yen for two year rate |
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0.008891 dollar per yen for one year rate and 0.009161 dollar per yen for two year rate |
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0.008891 yen per dollar for one year rate and 0.009161 yen per dollar for two year rate |
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117.58 yen per dollar for one year rate and 121.15 yen per dollar for two year rate |
Refer to Greenwich Industries in question 19. If Greenwich undertakes the project, what is the net present value of the project in U.S. dollars?
$ 432.7 |
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$ 454.5 |
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$ 456.5 |
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$ 462.5 |
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$ 470.5 |