International Machinery Company (IMC) is a Swedish multinationalmanufacturing company. Currently, IMC's financial planners areconsidering undertaking a 1-year project in the United States. Theproject's expected dollar-denominated cash flows consist of aninitial investment of $2,650 and a cash inflow the following yearof $3,600. IMC estimates that its risk-adjusted cost of capital is15%. Currently, 1 U.S. dollar will buy 6.2 Swedish kronas. Inaddition, 1-year risk-free securities in the United States areyielding 6%, while similar securities in Sweden are yielding5%.
a. If the interest parity holds, what is the forward exchangerate of Swedish krona per U.S. dollar? Round your answer to 2decimal places. Do not round intermediate calculations.
Swedish krona per U.S. dollar
b. If IMC undertakes the project, what is the net present valueand rate of return of the project for IMC in home currency? Roundyour answer to 2 decimal places. Do not round intermediatecalculations.
NPV: Swedish kronas
Rate of return: %
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