Chapter 15, Additional Question 3 The manager of a UK subsidiary of a US firm is deciding whether to borrow for one year at USD 7.8% or GBP at 12%. If the current value of the GBP is USD1.70, at what end-of-year exchange rate would the manager be indifferent between borrowing USD and GBP? Chapter 17. Conceptual Question 1 Suppose the real value of the pound declines. How would this decline likely affect the economics of the IDC-U.K. project? Chapter 17. Conceptual Question 6 Some economists have stated that too many companies are not calculating the cost of not investing in new technology, world-class manufacturing facilities, or market position overseas. What are some of these costs? How do these costs relate to the notion of growth options discussed in the chapter? Chapter 17. Question 2 Suppose a firm projects a $5 million perpetuity from an investment of $20 million in Spain. If the required return on this investment is 20 percent, how large does the probability of expropriation in year 4 have to be before the investment has a negative NPV? Assume that all cash inflows occur at the end of each year and that the expropriation, if it occurs, will occur prior to the year-4 cash inflow or not at all. There is no compensation in the event of expropriation. Chapter 17. Question 3. Suppose a firm has just made an investment in France that will generate $2 million annually in depreciation, converted at today's spot rate. Projected annual rates of inflation in France and in the United States are 7 percent and 4 percent, respectively. If the real exchange rate is expected to remain constant and the French tax rate is 50 percent, what is the expected real value (in terms of today's dollars) of the depreciation charge in year 5, assuming that the tax write-off is taken at the end of the year