Galaxy International., an American subscription streaming service and product company, is evaluating setting up a production...

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Galaxy International., an American subscription streaming service and product company, is evaluating setting up a production hub in Hong Kong. The production hub will cost Hong Kong dollar (HKD) 270 million to launch. The cash flows from the project would be HKD 90 million per year for the next 4 years. The dollar required return is 10 percent per year, and the current exchange rate is 7.84 HKD per dollar. The risk-free on dollars is 2 percent per year. It is 1.4 percent per year on HKD. a. Convert the projected Hong Kong dollar flows into dollar flows and calculate the NPV (Home Currency Approach). (8 marks) b. Calculate the NPV in Hong Kong dollar and then convert it to dollars (Foreign Currency Approach). (8 marks) Galaxy International., an American subscription streaming service and product company, is evaluating setting up a production hub in Hong Kong. The production hub will cost Hong Kong dollar (HKD) 270 million to launch. The cash flows from the project would be HKD 90 million per year for the next 4 years. The dollar required return is 10 percent per year, and the current exchange rate is 7.84 HKD per dollar. The risk-free on dollars is 2 percent per year. It is 1.4 percent per year on HKD. a. Convert the projected Hong Kong dollar flows into dollar flows and calculate the NPV (Home Currency Approach). (8 marks) b. Calculate the NPV in Hong Kong dollar and then convert it to dollars (Foreign Currency Approach). (8 marks)

Answer rating: 100% (QA)

a Home Currency Approach To calculate the NPV of the project using the home currency approach we nee... View the full answer