As a finance manager of Nina Corporation, you are analyzing a project Alpha with an initial...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
As a finance manager of Nina Corporation, you are analyzing a project Alpha with an initial cost of RM145,000. The project is expected to return RM18,000 the first year, RM48,000 the second year, and RM87,000 the third year. There is no salvage value. You intend to venture this project in the U.S. and hence you are concerned about the foreign exchange rates and interest rate parity. The current spot rate against US$ is RM5.201. The nominal risk-free return is 4 percent in Malaysia and 2.5 percent in the U.S. The return relevant to the project is 12 percent in the U.S. Assume that uncovered interest rate parity exists. In another project, project Delta, you plan to involve in hedging activities to minimize risk. In future contracts, you sold three March cocoa future contracts at a price quote of 950. Cocoa futures contracts are based on 8 metric tons and priced in Ringgit Malaysia (RM) per ton. (i) What is the net present value of project Alpha in U.S. dollars? (10 Marks) (ii) What will be your profit or loss of project Delta's contract if the price turns out to be RM1000 per metric ton at expiration? (5 Marks) As a finance manager of Nina Corporation, you are analyzing a project Alpha with an initial cost of RM145,000. The project is expected to return RM18,000 the first year, RM48,000 the second year, and RM87,000 the third year. There is no salvage value. You intend to venture this project in the U.S. and hence you are concerned about the foreign exchange rates and interest rate parity. The current spot rate against US$ is RM5.201. The nominal risk-free return is 4 percent in Malaysia and 2.5 percent in the U.S. The return relevant to the project is 12 percent in the U.S. Assume that uncovered interest rate parity exists. In another project, project Delta, you plan to involve in hedging activities to minimize risk. In future contracts, you sold three March cocoa future contracts at a price quote of 950. Cocoa futures contracts are based on 8 metric tons and priced in Ringgit Malaysia (RM) per ton. (i) What is the net present value of project Alpha in U.S. dollars? (10 Marks) (ii) What will be your profit or loss of project Delta's contract if the price turns out to be RM1000 per metric ton at expiration? (5 Marks)
Expert Answer:
Answer rating: 100% (QA)
i Net Present Value NPV of Project Alpha in US Dollars Step 1 Convert Initial Cost to USD Initial Co... View the full answer
Related Book For
Financial Analysis with Microsoft Excel
ISBN: 978-1285432274
7th edition
Authors: Timothy R. Mayes, Todd M. Shank
Posted Date:
Students also viewed these finance questions
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
You must prepare a Statement of Advice (SoA) that addresses all the questions raised in the letter on the following three pages of this document. Assume that you are a team of graduate accountants...
-
Peete's Coffee and Tea purchased equipment on March 1, 2022 for $17,400. It is estimated that the equipment will have a $300 salvage value at the end of its 6 -year useful life. It is also estimated...
-
The activities of 131I and 123I used in thyroid scans are given in Table 32.1 to be 50 and 70 Ci, respectively. Find and compare the masses of 131I and 123I in such scans, given their respective...
-
Dungannon Enterprises Ltd. sells a specialty part that is used in widescreen televisions and provides the ultimate in screen clarity. To promote sales of its product, Dungannon launched a program...
-
Consider the following cash flow profile and assume MARR is 10 percent/year and the finance rate is 4 percent/year. a. Determine the MIRR for this project. b. Is this project economically attractive?...
-
Fred and George have been in partnership for many years. The partners, who share profits and losses on a 60:40 basis, respectively, wish to retire and have agreed to liquidate the business....
-
Find the x and y intercept For the equation y= 2 x+1, Part: 0/3 Part 1 of 3 (a) Find the x-intercept. The x-intercept is DD
-
make a BankAccount class that has one property (balance) and two methods (deposit, withdraw). The balance property holds the current balance in the account. It should be set to zero when a...
-
A taxpayer tells their tax preparer they only earned employment income in the year. The preparer reports the employment income as the only source of income when completing the tax return. However,...
-
SUBJECT: ACCOUNTING The owner got some goods costing P450 but priced to sell for P500 to be given as a gift to a friend. What is the journal entry based on perpetual system
-
Will the reporting change if on December 31, 2018 no specific amount is the best estimate of the loss? In other words, while the range of $15 to $20 million is reasonable, no specific amount in this...
-
Suppose that the total benefit and total cost from a continuous activity are B(Q) = 76 + 24Q 2Q 2 and C(Q) = 60 + 6Q. What level of Q maximize net benefits? At the value of Q that maximize net...
-
What are some examples that prove the impact of terrorism on global economics?
-
Actuarial loss on change in assumptions, arising during 20X1 115,000 Actual return on plan assets for 20X1 12,000 Fair value of plan assets, January 1, 20X1 344,000 Current service cost for 20X1...
-
Find the velocity, acceleration, and speed of a particle with the given position function. r(t) = (t 2 , sin t - t cos t, cos t + t sin t), t > 0
-
As an analyst at Churnem&Burnem Securities, you are responsible for making recommendations to your firm's clients regarding common stocks. After gathering data on Denver Semiconductors, you have...
-
Chicago Turkey is considering a new turkey farm to service its western region stores. The stores currently require 650,000 turkeys per year, and they are purchased from various local turkey farms for...
-
You were recently hired to improve the financial condition of Idaho Springs Hardware, a small chain of three hardware stores in Colorado. On your first day the owner, Chuck Vitaska, told you that the...
-
The perfectly competitive model assumes that firms know when marginal revenue equals marginal costs. a. If a firm doesnt have this information, can it produce at the profit-maximizing level of...
-
Hundreds of music stores have been closing in the face of stagnant demand for CDs because of new competition by online music vendors. a. How would price competition from these new sources cause a...
-
A California biotechnology firm submitted a tomato that will not rot for weeks to the U.S. Food and Drug Administration. It designed such a fruit by changing the genetic structure of the tomato. What...
Study smarter with the SolutionInn App