Interest rate parity in calculating the expected spot rates

Assignment Help Financial Management

Reference no: EM131623684

Lakonishok Equipment has an investment opportunity in Europe. The project costs Element 15 million and is expected to produce cash flows of Element 2.8 million in Year 1, Element 3.4 million in Year 2, and Element 3.9 million in Year 3. The current spot exchange rate is $1.43/Element: and the current risk-free rate in the United States is 2.9 percent, compared to that in Europe of 2.2 percent. The appropriate discount rate for the project is estimated to be 11 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated Element 9.8 million. Use the exact form of interest rate parity in calculating the expected spot rates.

What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not in millions, e.g., 1, 234, 567.) NPV $.

Reference no: EM131623684

Questions Cloud

Calculate the net daily advantage of the system : If the lock box makes the cash available 2 days earlier, calculate the net daily advantage of the system.

What is the expected profit of granting credit : What is the expected profit of granting credit?

Requires purchases of capital assets : You are the Project Manager for a project that requires purchases of capital assets costing $1,050,000. what is the next present value of the project?

Calculate the amount of the firm gross profit : Calculate the amount of the firm’s gross profit.

Interest rate parity in calculating the expected spot rates : Lakonishok Equipment has an investment opportunity in Europe. Use the exact form of interest rate parity in calculating the expected spot rates.

What is the amount of the firm ebit : Advantage First Corporation has sales of $4,981,730; What is the amount of the firm’s EBIT?

Changes in working capital are negligible and capex : assume that changes in working capital are negligible and capex and depreciation are of the same magnitude and therefore cancel each other.

Create value for the shareholders instead : “Capital Structure Decision and Dividend Decision do not create value for the shareholders instead they provide a mechanism for the distribution of value create

When company is highly leveraged this means : When a company is “highly leveraged”, this means:

User Account

All Pages