Zeda, Inc., a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK 15,000,000

at a rate of 4 percent per annum. The normal borrowing rate is 6 percent in dollars and 5.5 percent in Danish krone. The loan schedule calls for the principal to be repaid in three equal

annual installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK6.70/$1.00 and the expected inflation rate is 3% in the U.S. and 2.5%

in Denmark.

(a) Fill in the answers in the table below.

Answer:

Year (t)	St	Principal Payment DKK	It DKK	Total Payment $	PV of total payment $
1
2
3

(b) The dollar value of the concessionary loan is: ____________________

(c) The dollar present value of the concessionary loan payments is: ____________________

(d) The present value of the benefit of the concessionary loan is: ____________________