Reference no: EM132407402
Assume that ABC Corporation is considering the establishment of a subsidiary in Sweden. The initial investment required by the parent is $5,000,000. If the project is undertaken, ABC would terminate the project after four years. ABC' cost of capital is 10%, and the project is of the same risk as ABCs' existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Sweden subsidiary will generate over the project's lifetime in Sweden krona (SEK): Please, show all your calculations step by step how you reach your solution, a single numeric answer will not be given any credits.
Year 1Year 2Year 3Year 4SEK5,000,000SEK10,000,000SEK15,000,000SEK20,000,000
The current exchange rate of the Sweden krona (SEK) is $.13. ABC' exchange rate forecast for the Sweden krona over the project lifetime is listed below:
Year 1Year 2Year 3Year 4$.10$.11$.09$.12
What is the net present value of the Sweden project? Is the project acceptable based on NPV)