What is the expected forward exchange rate

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Solitaire Machinery is a Swiss multinational manufacturing company. Currently, Solitaire's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar- denominated cash flows consist of an initial investment of $1,000 and a cash inflow the following year of $1,200. Solitaire estimates that its risk-adjusted cost of capital is 14%. Currently, 1 U.S. dollar will buy 1.025 Swiss francs. In addition, 1-year risk-free securities in the United States are yielding 7.25%, while similar securities in Switzerland are yielding 4.5%.
a. If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project?
b. What is the expected forward exchange rate 1 year from now?
c. If Solitaire undertakes the project, what is the net present value and rate of return of the project for Solitaire?

Reference no: EM131106754

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