Reference no: EM132443235
Problem: Solitaire Machinery is a Swiss multinational manufacturing company. Financial planners are considering undertaking a 1 year project in US. Project expected dollar-denominated cash-flows consist of an initial investment of $1,000 and a cash inflow the following year of $1,200.
Estimates that its risk-adjusted cost of capital is 12%
1 U.S. dollar will buy .90 Swiss franc
1 year risk-free securities in US are yielding 5%
similar securities in Switzerland are yielding 3.25%
Required:
Question 1: If this project was instead undertaken by a similar US based company with the same risk adjusted cost of capital, what would be the net present value and rate of return generated by this project?
Question 2: What is the expected forward exchange rate 1 year from now?
Question 3: If Solitaire undertake the project, what is the net present value and rate of return of the project for Solitaire?