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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

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.

 

Feb 13 2020 View more View Less

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