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FIN535 Week 7 Homework




FIN535 Week 7 Homework;Disney?s DRI Motives;What potential benefits do you think were most important in the decision of the Walt Disney Co. to build a theme park in France?;Q20;A project in South Korea requires an initial investment of 2 billion South Korean won. The project is expected to generate net cash flows to the subsidiary of 3 billion and 4 billion won in the two years of operation, respectively. The project has no salvage value. The current value of the won is 1,100 won per U.S. dollar, and the value of the won is expected to remain constant over the next two years.;a. What is the NPV of this project if the required rate of return is 13 percent?;b. Repeat the question, except assume that the value of the won is expected to be 1,200 won per U.S. dollar after two years. Further assume that the funds are blocked and that the parent company will only be able to remit them back to the U.S. in two years. How does this affect the NPV of the project?;Question 14. Host Government Incentives for DFI;Why would foreign governments provide MNCs with incentives to undertake DFI there?;Question 30. Sensitivity of NPV to Conditions;Burton Co., based in the United States, considers a project in which it ahs an initial outlay of $3 million and expects to receive 10 million Swiss frans (SF) in 1 year. The spot rate of the franc is $.80. Burton Co. decides to purchase put options on Swiss franc with an exercise price of $.78 and a premium of $.02 per unit to hedge its receivables. It has a required rate of return of 20 percent.;a. Determine the net present value of this project for Burton Co. based on the forecast that the Swiss franc will be valued at $.70 at the end of 1 year.;b. Assume the same information as in part (a), but with the following adjustment. While Burton expected to receive 1 million Swiss francs, assume that there were unexpected weak economic conditions in Switzerland after Burton initiated the project. Consequently, Burton received only 6 million Swiss francs at the end of the year. Also assume that the spot rate of the franc at the end of the year was $.79. Determine the net present value of this project for Burton Co. if these conditions occur.


Paper#29420 | Written in 18-Jul-2015

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