Reference no: EM133187345

Question 1 - Steel Pro Private Limited, a Zimbabwean based international corporation, is evaluating an overseas long term capital investment. The corporation's exports of steel products have increased to such a degree that it is contemplating building a centre in the United Kingdom. The project will cost £2 million to launch and will generate net cash flows of £0.9 million a year for the next 3 years. The current spot exchange rate between the two currencies is £0.50/$150. The risk-free rates of return are 5% and 7% in Zimbabwe and United Kingdom respectively and the corporation's required return on dollar investment is 10% pa.

Required -

a) Evaluate the viability of the proposed United Kingdom steel production project using the Domestic or Home Currency approach.

b) Examine any three determinants of the exchange rate between the Zimbabwean dollar and the United Kingdom (UK) pound that would influence the Zimbabwe firm's steel production business in the UK.

Question 2 - Following the MBI, the Board of Directors of BT Co announced that its intention was to list the company on a recognised stock exchange within seven years. The Board of Directors is discussing whether to obtain the listing through an initial public offering (IPO) or through a reverse takeover, but it does not currently have a strong preference for either option.

Required - Distinguish between an IPO and a reverse takeover and discuss whether an IPO or a reverse takeover would be an appropriate method for BT Co to obtain a listing.