Project under the conditions that brooks receives

Assignment Help Basic Statistics

Reference no: EM131042814

Brooks Co. (a U.S. firm) considers a project in which it will have computer software developed. It would sell the software to Razon Co., an Australian company, and would receive payment of 10 million Australian dollars (A$) at the end of 1 year. To obtain the software, Brooks would have to pay a local software producer $4 million today. Brooks Co. might also receive an order for the same software from Zug Co. in Australia. It would receive A$4 million at the end of this year if it receives this order, and it would not incur any additional costs because it is the same software that would be created for Razon Co.

The spot rate of the Australian dollar is $.50, and the spot rate is expected to depreciate by 8 percent over the next year. The 1-year forward rate of the Australian dollar is $.47. If Brooks decides to pursue this project (have the software developed), it would hedge the expected receivables due to the order from Razon Co. with a 1-year forward contract, but it would not hedge the order from Zug Co. Brooks would require a 24 percent rate of return in order to accept the project.

a. Determine the net present value of this project under the conditions that Brooks receives the order from Zug and from Razon and that Brooks receives payments from these orders in 1 year.

b. Brooks recognizes there are some country risk conditions that could cause Razon Co. to go bankrupt. Determine the net present value of this project under the conditions that Brooks receives both orders but that Razon goes bankrupt and defaults on its payment to Brooks.

Reference no: EM131042814

Questions Cloud

Austin finances with yen without covering its position : Austin Co. needs to borrow $10 million for the next year to support its U.S. operations. It can borrow U.S. dollars at 7 percent or Japanese yen at 1 percent. It has no other cash flows in Japanese yen. Assume that interest rate parity holds, so t..

Find some examples of tools that use snmp : How widely used is SNMP now? Find some examples of tools that use SNMP.

Suggest a significant challenge of applying wsihs : Determine the most significant requirement of an effective solution to interoperability - Provide a rationale for your determination.

Provide examples of dual relationships for which these codes : Read the ACA and NAADAC Codes of Ethics and compare the positions that each takes on issues of dual relationships. Provide examples of dual relationships for which these codes do not give definitive guidance about the appropriateness of the relat..

Project under the conditions that brooks receives : Brooks Co. (a U.S. firm) considers a project in which it will have computer software developed. It would sell the software to Razon Co., an Australian company, and would receive payment of 10 million Australian dollars (A$) at the end of 1 year. T..

How would you handle the following three situations : How would you handle the following three situations? What would you do in each?- Your client expresses emotional or physical attraction to you and you have similar feelings for your client.

Exchange rate of the swiss franc and argentine peso : Suppose you forecast that the Swiss franc will appreciate by 3 percent over the next year, but you realize that there is much uncertainty surrounding your forecast.

Suggest a significant benefit of interoperability : Elaborate on the trend of interoperability of health care management information systems - Determine a significant challenge that health care organizations will face when creating an interoperable system.

Should elements within a course that require developing : Should elements within a course that require developing procedural versus declarative memory be interspersed chronologically or separated into distinct stages? Why? What order, if any, is likely to maximize learning rate? Why?

User Account

All Pages