GM is considering purchasing a electrical components plant located in Hungary. All sales will be to Hungarian customers and denominated in forints. The projected investment and returns are

Purchase price: 30 billion forints

Additional investment required: 50 million USD. All imported equipment priced in USD.

Projected Hungarian sales: 45 billion forints

Projected earnings 4.5 billion forints

Exchange rate: 300 forints / usd

EXPLAIN the following

1) What is the total investment (in dollars)?

a) 10m

b) 100m

c) 90m

d) 150m

2. Once the plant is up and running, what is the annual percentage return on investment:

a) 10%

b) 15%

c) 5.6%

3. the forint is devalued by 25%., what would the new exchange rate be?

a) 375 HF/$

b) 400 HE/S

c) 225

d) 240 HF/$

4. If this 25% devaluation was made after the purchase and additional investments were completed, what would the new ROT be?

a) 7.5%

b) 12.5%

c) 11.25%

d) 18.75%

5) Instead of selling to the Hungarian market, assume that all sales were exports priced in hard currency, and yielding the same 4.5 billion forint earnings (at the original 300 forint/USD

exchange rate). If the 2% devaluation described in questions c and D occurred, what would happen to the plant s profit margins:

a) they would rise by about 25%

b) they would fall by about 25%

c) they rise by more than 25%

d) they would call by less than 25%