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Category > Business & Finance Posted 10 Jun 2017 My Price 12.00

The South Korean multinational manufacturing firm

The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. The projects expected dollar cash flows consist of an initial investment of $1 million with cash inflows of $700,000 in Year 1 and $600,000 in Year 2. The risk-adjusted cost of capital for this project is 13%. The current exchange rate is 1,050 won per U.S dollar. Risk free interest rates in the United States and S. Korea are: U.S. 1-year 4.0% 2-year 4.25% S. Korea 1-year 3.0% 2-year 3.25%

a. If this project were instead undertaken by a similar U.S. based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? Answer: $89,357; 20%

b. What is the expected forward exchange rate 1 year from now and 2 years from now? (hint: take the perspective of the Korean company when identifying home and foreign currencies and direct quotes of exchange rates.) Answers: 1039.90 and 1029.95

c. If Nam Sung undertakes the project, what is the net present value and rate of return of the project for Nam Sung? Answers: 18.85% and $78,150,661

I posted this last week and do not fully understand the responses. Please show calculations in excel format so that I understand how the answers are calculated. Thank you

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Status NEW Posted 10 Jun 2017 08:06 AM My Price 12.00

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