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Category > Business & Finance Posted 07 Jun 2017 My Price 7.00

Manzetti Foods, a U.S. food processing and distribution company, i

Manzetti Foods, a U.S. food processing and distribution company, is considering an investment in the euro area. You are in Manzetti’s corporate finance department and are responsible for deciding whether to undertake the project. The expected free cash flows, in euros, are uncor- related to the spot exchange rate and are shown here:

Year

Free Cash Flow ( € million)

0

- 25

1

12

2

14

3

15

4

15

The new project has similar dollar risk to Manzetti’s 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%.

a. Manzetti is willing to assume that capital markets in the United States and the euro area are internationally integrated. What is the company’s euro WACC?

b. What is the present value of the project in euros?

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Status NEW Posted 07 Jun 2017 06:06 AM My Price 7.00

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