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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 18 million. The cash flows from the project would be SF 5.5 million per year for the next five years. The dollar required return is 15 percent per year, and the current exchange rate is SF 1.05. The going rate on Eurodollars is 4 percent per year. It is 3 percent per year on Euroswiss. Use the approximate form of interest rate parity in calculating the expected spot rates.
a. Convert the projected franc flows into dollar flows and calculate the NPV. (Enter your answer in dollars, not in millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV $ ____________
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Say two organizations merge and the merge fails for different reasons.
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We buy a 15 year 10% bond at the time that market rates are7%. We do not know that we shall sell it before its maturity. When we purchase it rates rise to 12% and stay there till we sell it. We sell the bond six years later when market rates are 5%. ..
Consider the following cash flows: Year Cash Flow 0 –$ 7,600 1 2,150 2 4,900 3 1,950 4 1,650 What is the payback period for the cash flows?
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