Romanus Company, a U.K. MNC, is contemplating making a foreign capital expenditure in South Korea. The...

 

Transcribed Image Text:

Romanus Company, a U.K. MNC, is contemplating making a foreign capital expenditure in South Korea. The initial cost of the project is KRW 22,000. The annual cash flows over the seven year economic life of the project in KRW are estimated to be: 4,000; 5,000; 6,000; 7000; 8,000; 9,000; and, 10,200. The parent firm's cost of capital in pounds is 7.5%. Long-run inflation is forecasted to be 3.5% per annum in the U.K. and 7.5% in South Korea. The current spot foreign exchange rate is KRW/GBP = 3.75. What is the NPV in GBP if the actual pattern of KRW/GBP exchange rates are: S(O) = 3.75, S(1) = 5.7, S(2) = 6.7, S(3) = 7.2, S(4)= 7.7; S(5)= 8.2; S(6) = 9.2; S(5) = 10.2. Romanus Company, a U.K. MNC, is contemplating making a foreign capital expenditure in South Korea. The initial cost of the project is KRW 22,000. The annual cash flows over the seven year economic life of the project in KRW are estimated to be: 4,000; 5,000; 6,000; 7000; 8,000; 9,000; and, 10,200. The parent firm's cost of capital in pounds is 7.5%. Long-run inflation is forecasted to be 3.5% per annum in the U.K. and 7.5% in South Korea. The current spot foreign exchange rate is KRW/GBP = 3.75. What is the NPV in GBP if the actual pattern of KRW/GBP exchange rates are: S(O) = 3.75, S(1) = 5.7, S(2) = 6.7, S(3) = 7.2, S(4)= 7.7; S(5)= 8.2; S(6) = 9.2; S(5) = 10.2.

Answer rating: 100% (QA)

A NPV of the project in KRW is 815138 NPV is positive so project accepted PH23 ISOCO 8 Year Cash fl... View the full answer