Solutions to Ross 9e

548 Now we can use these future spot effectuate to aline the dollar cash be givens. The dollar cash ply each year will be: Year 0 cash flow = €$18,000,000($1.22/€) = $21,960,000.00 Year 1 cash flow = €$3,600,000($1.2282/€) = $4,421,533.14 Year 2 cash flow = €$4,100,000($1.2365/€) = $5,069,496.10 Year 3 cash flow = (€5,100,000 + 12,200,000)($1.2448/€) = $21,534,638.87 And the NPV of the project will be: NPV = $21,960,000 + $4,421,533.14/1.13 + $5,069,496.10/1.132 + $21,534,638.87/1.133 NPV = $847,605.21 15. a. Implicitly, it is imitation that interest rates wont change everywhere the life of the project, but the exchange rate is projected to turn away because the Euroswiss rate is lower than the Eurodollar rate. b. We can use relative get power parity to calculate the dollar cash flows at each time. The equation is: E[ST] = (SFr 1.72)[1 + (.07 .08)]T E[ST] = 1.72(.99)T So, the cash flows each year in U.S. dollar terms will be: t SFr E[St] US$ 0 $25,000,000 1.7200 $14,534,883.72 1 7,200,000 1.7028 4,228,329.81 2 7,200,000 1.

6858 4,271,040.21 3 7,200,000 1.6689 4,314,182.03 4 7,200,000 1.6522 4,357,759.63 5 7,200,000 1.6357 4,401,777.40 And the NPV is: NPV = $14,534,883.72 + $4,228,329.81/1.13 + $4,271,040.21/1.132 + $4,314,182.03/1.133 + $4,357,759.63/1.134 + $4,401,777.40/1.135 NPV = $603,600.61 c. Rearranging the relative purchasing power parity equation to find the required return in Swiss francs, we get: RSFr = 1.13[1 + (.07 .08)] 1 RSFr = 11.87% So, the NPV in Swiss francs is: NPV = SFr 25,000,000 + SFr 7,200,000(PVIFA11.87%,5) If you want to get a full essay, order it on our website: Ordercustompaper.com

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