Login or Sign Up

Ask a New Question

Suppose you are evaluating a proposed expansion of an existing subsidiary located in France. The cost of the expansion would be € 2 million. The cash flows are expected to be € 0.9 million a year for the next three years. The dollar required return is 10 percent per year, and the current spot exchange rate for Euros is € 0.5. The risk-free rate in the United States is 5 percent, and the risk-free rate in “Euro-land” is 7 percent.

Using home currency and foreign currency approach decide whether the expansion should made or not on the basis of NPV.

Top 10 Answers Show all 12 answers

the answer of the ff quetions

Suppose you are evaluating a proposed expansion of an existing subsidiary located in France. The cost of the expansion would be € 2 million. The cash flows are expected to be € 0.9 million a year for the next three years. The dollar required return is 10 percent per year, and the current spot exchange rate for Euros is € 0.5. The risk-free rate in the United States is 5 percent, and the risk-free rate in “Euro-land” is 7 percent.

Using home currency and foreign currency approach decide whether the expansion should made or not on the basis of NPV

Answer for this question

Suppose you are evaluating a proposed expansion of an existing subsidiary located in France. The cost of the expansion would be € 2 million. The cash flows are expected to be € 0.9 million a year for the next three years. The dollar required return is 10 percent per year, and the current spot exchange rate for Euros is € 0.5. The risk-free rate in the United States is 5 percent, and the risk-free rate in “Euro-land” is 7 percent. Using home currency and foreign currency approach decide whether the expansion should made or not on the basis of NPV

Suppose you are evaluating a proposed expansion of an existing subsidiary located in France. The cost of the expansion would be € 2 million. The cash flows are expected to be € 0.9 million a year for the next three years. The dollar required return is 10 percent per year, and the current spot exchange rate for Euros is € 0.5. The risk-free rate in the United States is 5 percent, and the risk-free rate in “Euro-land” is 7 percent.

foreign currency

student

I want the answer please

Suppose you are evaluating a proposed expansion of an existing subsidiary located in France. The cost of the expansion would be € 2 million. The cash flows are expected to be € 0.9 million a year for the next three years. The dollar required return is 10 percent per year, and the current spot exchange rate for Euros is € 0.5. The risk-free rate in the United States is 5 percent, and the risk-free rate in “Euro-land” is 7 percent.

Using home currency and foreign currency approach decide whether the expansion should made or not on the basis of NPV

Submit

2344230

Did you know?

Did you know that in evaluating the proposed expansion of an existing subsidiary located in France, the Net Present Value (NPV) can be calculated using both the home currency and foreign currency approach? In the home currency approach, the cash flows from the expansion are translated into the home currency (in this case, the US dollar) using the current spot exchange rate. The cost of the expansion, which is €2 million, will be converted into dollars using the exchange rate of €0.5 per dollar. Next, the cash flows of €0.9 million per year for the next three years are discounted back to present value using the dollar required return rate of 10 percent per year. The discounted cash flows are then compared to the initial investment to calculate the NPV. In the foreign currency approach, the cash flows from the expansion are kept in euros and discounted using the risk-free rate in "Euro-land" of 7 percent. The discounted cash flows in euros are then compared to the initial investment of €2 million to calculate the NPV. By comparing the NPV calculated from both approaches, decision-makers can determine whether the expansion should be made or not. If the NPV is positive, it indicates that the expansion is expected to generate value and should be pursued. If the NPV is negative, it suggests that the expansion is not expected to generate sufficient returns and may not be a wise investment.