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