Compute the wacc of a hypothetical firm

Assignment Help Business Economics

Reference no: EM133137485

Question 1: There are two investments we invest in two consecutive years. The first project in year one is financed by equity and the second project in year two by debt. The cost of debt after tax is 5%, and the cost of equity is 13%. The internal rate of return is 12 % in the first year. The internal rate of return is 7% in the second year. Do we invest in the first year's project? Do we invest in the second-yearinvestment?

Question 2: Compute the WACC of a hypothetical firm, if you know the return in the market, the risk-free rate, the cost of debt and unlevered bheta are .12, .02, .08 and 1, and the weights of debt and equity are 40% and 60%, respectively domestically. In the foreign nation, respective values are .14, .04, .1, 1.3, 70% and 30%. Assume debt and equity of the project abroad are .7 and .3. Additionally, assume .8 is financed abroad and .2 is financed in the US of the total debt.

Question 3: Explicate the reasons a currency appreciation (depreciation) increases (decreases) the profitability of a foreign investment, ceteris paribus. Your explication should at least refer to the conversion of debt payment (principal and interest) and dividends from the foreign currency, let us say, rupee to dollars. Everything else presuppose remains constant (ceteris paribus.)

Question 4: How would the results of problem one alters, if we additionally had sales from India to China, and the renminbi revalues against the rupee by 10% yearly for the next 15 years? Presuppose the volume of sales in China are double what they are in India in the beginning. Also, presuppose the price elasticity of demand is - 3 for the product in China. Presuppose secondly the expenses are incurred in rupees. Also, you are given that the expenses rise in rupees in the next 15 years (since the rupee devalues), but they rise only by half of the devaluation.

Question 5: Discuss the choice of financing a foreign project by equity versus debt and by debt incurred in dollars versus in the currency of the foreign subsidiary. Ascertain you analyze a possible devaluation of the foreign currency in comparison to the dollar. Moreover, discuss on possible expropriation of the subsidiary by the host government.

Reference no: EM133137485

Questions Cloud

Is a desire for fame compatible with concern : Is a desire for fame compatible with concern for the public good? Explain. Use specific examples

Assignment on conflict and labor relations : 1.) What is conflict? 2.) What are the types of conflict? 3.) Describe the stages of conflict process.

Blue collar employee in an automobile company : An employee was working as blue collar employee in an automobile company for the last 15 years. He was very productive and always delivered high performance in

Debate in HR field concerning performance appraisals : For years, there has been a debate in the HR field concerning performance appraisals.

Compute the wacc of a hypothetical firm : Compute the WACC of a hypothetical firm, if you know the return in the market, the risk-free rate, the cost of debt and unlevered bheta

Employment laws impact everyone : Employment laws impact everyone, regardless if you are actively employed or not. As employers continue to control costs associated with claims from employees,

What is the cross rate between the yen and the peso : At today's spot exchange rates 1 U.S. dollar can be exchanged for 10 Mexican pesos or for 111.52 Japanese yen. What is the cross rate between the yen and peso

Discuss employee involvement in organizational development : How to increase overall company performance through organizational development in energy company. Discuss employee involvement in organizational development?

Find a fair price : ABC has a 5% coupon bond outstanding. The remaining maturity is 10 years. The market yield on this type of bond is 6%. Find a fair price

User Account

All Pages