Essay on On February 26, 2015, an American Company

639 Words Jun 6th, 2016 3 Pages
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Essay Sample: Page 2
d. NPV is negative before the exchange rate change but turns positive after the exchange rate change.







3. Given a current spot rate of 8.10 Norwegian krone per U.S. dollar, expected inflation rates of 6% in Norway and 3% per annum in the U.S., what is the expected one-year spot rate of krone per dollar according to PPP?



Your answer: Krone_______________/$



(Keep two decimals; Do include the “-” if your answer is a negative number.)



Assume that an MNE considers two alternative modes of entering a potential market abroad:



licensing and foreign direct investment. The initial investment outlays in year 0 and free cash flows



for subsequent years are presented below ($ millions):







Refer to this information for Questions 4 to 7



4. What is the IRR for the licensing alternative?





Your answer: _______________%



(Keep two decimals; Do include the “-” if your answer is a negative number.)





5. What is the NPV for FDI alternative if cost of capital for the project is 12%?





Your answer: $_______________million



(Keep two decimals; Do include the “-” if your answer is a negative number.)





6. Which alternative would you recommend if the two alternatives are mutually exclusive?





a. Licensing.



b. FDI.



c. Neither is acceptable.





7. Assume that a proposed investment project requires an initial investment of $10 million and the expected cash flow is $2 million each year for the next
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