Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in Portugal. You are employed in
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Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in Portugal. You are employed in Etemadi’s corporate finance department and are responsible for deciding whether to undertake the project. The expected free cash flows, in euros, are shown here:
You know that the spot exchange rate is S = $1.2832/;. In addition, the risk-free interest rate on dollars is 5.2% and the risk-free interest rate on euros is 6.9%.
Assume that these markets are internationally integrated and the uncertainty in the free cash flows is not correlated with uncertainty in the exchange rate. You determine that the dollar WACC for these cash flows is 8.5%. What is the dollar present value of the project? Should Etemadi Amalgamated undertake the project?
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Related Book For 
Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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