Essay on On February 26, 2015, an American Company

639 Words Aug 22nd, 2016 3 Pages
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On February 26, 2015, an American company Click Link Below To Buy: http://hwcampus.com/shop/1-on-february-26-2015-an-american-company-company-a-sold-an-euro-denominated/ Or Visit www.hwcampus.com 1. On February 26, 2015, an American company, Company A, sold an euro-denominated eight-year bond at a fixed interest rate of 1%. In comparison, a similarly rated company, Company B, sold a bond with the same maturity in the U.S. with a coupon of 2.5%. The exchange rate on February 26, 2015

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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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