Question

Bill Gates is analyzing a proposed expansion of a division in Switzerland. The cost of the expansion would be SF 16 million. The cash flows associated with the project would be SF 4.2 million per year for the next 5 years. The dollar required return is 12 percent per year, and the current exchange rate is SF 1.07. The interest rate in the U.S. is 5 percent per year. The interest rate in Switzerland is 2 percent per year. Use the approximate form of interest rate parity in calculating the expected spot rates. a. Convert the projected franc flows into dollar flows and calculate the NPV. (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to two decimal places, e.g., 1,234,567.89) b-1. What is the required return on franc flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-2. What is the NPV of the project in Swiss francs? (Do not round intermediate calculations and enter your answer in francs, not in millions, rounded to two decimal places, e.g., 1,234,567.89) b-3. What is the NPV in dollars if you convert the franc NPV to dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to two decimal places, e.g., 1,234,567.89)

Answer 1