International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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A company in country X with currency XSD is analyzing a potential investment in country Y with currency YSD. The best estimate is that YSD will be devalued in the international markets at an average of 3%. If the MARR of this company in country X is 23% what is the MARR that the company should use in country Y?
1. Shell Company is exploring two mutually exclusive opportunity. There are two available opportunities for Shell with the following information:
a. Petron Company has projected annual returns of Php7 Billion and outstanding liabilities of Php5 Billion.
b. Diesel Company has projected annual returns of Php12 Billion and outstanding liabilities of Php20 Billion.
c. Both companies have terminal value of Php100 Billion.
Using the information above, which is a better choice if the initial investment for Petron Company and Diesel Company is Php50 Billion and Php110 Billion, respectively. The cost of capital for the two companies are 10%.
You are International Business Manager at a UK based company. Your company has identified USA and Europe as
potential markets and wish to expand asap and plans a full-scale expansion. You are requested to analyse both projects
and advise. In considering such large project, you must work out the risk of each project, cost of capital (Hint: you can
use prevailing interest rates and inflation in each region to base your calculation) and calculate NPV. Allocate discount
rate for each project according to current international business climate and justify why you allocated the discount rate
for each region. Discuss how you aim to manage international risks. Projected cash flows in respective currencies: Year
Net Cash Flow - USA USD Net Cash Flow - Europe EUR 0 - 20 million -20 million 1 2 million 2 million 2 4 million 3
million 3 5 million 4 million
46 million 8 million 58 million 8 million Task: a. Briefly discuss viability of both projects in today's global business
context. Based on your…
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- Which of the following factors is not expected to generally have a favorable impact on the firm's cost of capital? Group of answer choices easy access to international capital markets. high degree of international diversification. high exposure to exchange rate fluctuations. all of thesearrow_forwardSuppose that California Co., a U.S.-based MNC that invests in projects all over the world, is analyzing potential projects in various countries in an attempt to pursue diversification. The following graph, which measures risk along the horizontal axis and expected returns along the vertical axis, depicts a point for each potential project in a different country. The blue curve represents the frontier of efficient project portfolios. Use the graph to answer the question that follows. EXPECTED RETURN Frontier of Efficient Project Portfolios True E In comparison to project F, project B has False RISK A expected returns and has ? True or False: A more aggressive firm would prefer a portfolio comprised mostly of projects similar to project E. risk.arrow_forwardA consumer product firm is considering making a major investment in China. The investment is expected to cost $5 billion, and the present value (PV) of the expected cash flows on the investment is only $3.5 billion. However, the firm believes that there are substantial expansion opportunities in China. Would that justify investing the $5 billion? Why or why not?arrow_forward
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