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What would be the net present value

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Reference no: EM132732028

Problem - The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. The project's expected dollar cash flows consist of an initial investment of $1 million with cash inflows of $700,000 in Year 1 and $600,000 in Year 2. The risk-adjusted cost of capital for this project is 13%. The current exchange rate is 1,050 won per U.S. dollar. Risk-free interest rates in the United States and S. Korea are:

 

1-Year

2-Year

U.S.

4.0%

4.25%

S. Korea

3.0%

3.25%

Required -

a. If this project were instead undertaken by a similar U.S.-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?

b. What is the expected forward exchange rate 1 year from now and 2 years from now?

c. If Nam Sung undertakes the project, what is the net present value and rate of return of the project for Nam Sung?

Reference no: EM132732028

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