Convert the projected franc flows into dollar flows and

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You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 27.0 million. The cash flows from the project would be SF 7.5 million per year for the next five years. The dollar required return is 13 percent per year, and the current exchange rate is SF 1.72. The going rate on Eurodollars is 8 percent per year. It is 7 percent per year on Swiss francs. a. What do you project will happen to exchange rates over the next four years? b. Based on your answer in (a), convert the projected franc flows into dollar fl ows and calculate the NPV. c. What is the required return on franc flows? Based on your answer, calculate the NPV in francs and then convert to dollars.

Reference no: EM13575807

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