Chapter 18. QUESTION 7. PART 1-18 QUESTION. PLEASE DO ALL.

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step 1: calculate the forward exchange rates

step 2: convert all cash flows in foreign currency into dollars using current and forward exchange rates

step 3: convert all future dollars into present value with the domestic discount rate

step 4: add the net present value of the outflow and inflow

step 5: accept the project if its net present value (NVP) is positive and reject if negative

III Homework: Chapter 18 Homework Question 7, P18-20 (similar to) Part 1 of 18 HW Score: 61.34%, 4.29 of 7 points Points: 0.29 of 1 Save Domestic NPV approach Farbucks is thinking of expanding to South Korea The current indirect rate for dollars and South Korean won is 984 won per dollar The expected inflation rate in South Korea should hover near 0.4% for the next five years. The expected US inflation rate should stay around 36% The discount rate for expanding is 13% for Farbucks Given the following projected cash flows for the expansion project, use the domestic NPV approach to determine whether Farbucks should expand to South Korea Year Initial investment costs of 80,000,000 won per coffee shop Year 1 cash flow 20,000,000 won Year 2 cash flow 30,000,000 won Year 3 cash flow 60,000,000 won Year 4 cash flow 85,000,000 won Year 5 cash flow 40,000,000 won Domestic currency approach in multinational capital budgeting consists of the following stops Step 1 Calculate the forward exchange ratos Step 2: Convert all cash flows in foreign currency into dollars using current and forward exchange rates Step 3. Convert all future dollars into present value with the domestic discount rate Step 4 Add the net present value of the outflow and inflow Step 5. Accept the project if its net present value (NPV) is positive and rejectif negative Step 2Convert all cash flows in foreign currency into dollars using current and forward exchange rates Step 3. Convert all future dollars into present value with the domestic discount rate Step 4. Add the net present value of the outflow and inflow Step 5. Accept the project if its net present value (NPV) is positive and reject if negative First, complete step 1 by calculating the forward rates The current indirect exchange rate is 984 for dollars and South Korean won. The inflation rate in South Korea is expected to hover near 0.4% for the next five years and the US inflation rate is expected to stay around 36% What is the 1 year forward indirect rate for dollars and South Korean won? won per $ (Round to four decimal places) Get more help Clear all Check answer Step 1: Calculate the forward exchange rates Step 2 Convert all cash flows in foreign currency into dollars using current and forward exchange rates Step 3 Convert all future dollars into present value with the domestic discount rate Step 4. Add the net present value of the outflow and inflow Step 5: Accept the project if its net present value (NPV) is positive and reject if negative