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Smith Enterprises is considering opening a new manufacturing plant in France. The cost of the new plant will be €25 million and the plant is expected to generate after tax cash flows of €10 million at the end of each year for the next 4 years. After that the plant will be worthless. The current €/$ exchange rate is €0.8166/$. The expected rate of inflation for the U.S is 2.5% per year. The risk free rate in the U.S. is 4% and the risk free rate in France is 6%.
48.Refer to Smith Enterprises International Investment. What is the expected rate of inflation in France?
a.4.47%
b.5.00%
c.6.52%
d.3.56%
49.Refer to Smith Enterprises International Investment. What is the cost of the manufacturing plant in U.S. dollars?
a.$20,415,000
b.$25,760,000
c.$30,615,000
d.$32,340,000
50.Refer to Smith Enterprises International Investment. If the required return of the project is 15% in Euro terms, what should be the required return in dollar terms?
a.15.00%
b.12.83%
c.17.21%
d.9.65%
51.Refer to Smith Enterprises International Investment. What is the 2-year $/€ forward exchange rate?
a..8012
b..7861
c..8263
d..8521
52.Refer to Smith Enterprises International Investment. What is the 3-year $/€ forward exchange rate?
a..7861
b..7719
c.1.2955
d.1.2721
53.Refer to Smith Enterprises International Investment. What is the NPV of the investment in US dollars when evaluating the € denominated cash-flows? Assume a required return of 15%.
a.$4.347 million
b.$2.899 million
c.$7.852 million
d.$9.514 million
54.Refer to Smith Enterprises International Investment. What is the NPV of the investment in €-terms, if the required rate of return is 15%.
a.€28.5498 million
b.€18.3267 million
c.€3.5498 million
d.€12.5682 million
55.Refer to Smith Enterprises International Investment. What is the expected $ value of the after tax cash flow received at the end of year 2?
a.$7.86 million
b.$10.45 million
c.$14,72 million
d.$12.72 million
56.If you are a U.S. based company making sales in Europe, you would benefit from
a.a strengthening U.S. dollar.
b.a weakening U.S. dollar.
c.a weakening Euro.
d.none of the above.
57.The system where a country pegs its currency to that of another currency is called
a.a floating exchange rate system.
b.a fixed exchange rate system.
c.a managed floating rate system.
d.none of the above.
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