Project involves selling widgets-what is euro-denominated

Assignment Help Financial Management

Reference no: EM13828849

Your firm is based in southern Ireland (and thereby operates in euro, not pounds) and is considering an investment in the United States.

The project involves selling widgets: you project a sales volume of 50,000 widgets per year, sales price of $20 per widget with a contribution margin of $15 per widget.

The project will last for 5 years; require an investment of $1,000,000 at time zero (which will be depreciated straight-line to $10,000 over the 5 years). Salvage value for the equipment is projected to be $10,000. The project will operate in rented quarters: $300,000 rent is due at the start of each year.

The corporate tax rate is 12½% in Ireland and 40% in the U.S.

For simplicity, assume that taxes are paid like sales taxes: immediately.

The spot exchange rate is $1.50 = €1.00. The cost of capital to the Irish firm for a domestic project of this risk is 8%. The U.S. risk-free rate is 3%; the Irish risk-free rate is 2%.

a. What is CF0 in dollars?

b. What is CF1 in dollars?

c. What is CF5 in dollars?

d. What is the NPV of the U.S.-based project to the Irish firm?

e. What is the dollar-denominated IRR?

f. What is the euro-denominated IRR?

g. Find the break-even price (in dollars) and break-even quantity for the U.S. project.

Reference no: EM13828849

Questions Cloud

Negotiating for collective bargaining contract : A union has just won an election in your organization to represent the workers. You are now faced with negotiating a collective bargaining contract.

What is NAL for Wildcat-computer-assisted drilling system : The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; What is the NAL for Wildcat? What is..

What are the primary entity relationship modeling : What are the primary entity relationship modeling and design conventions used for Oracle Database Management Systems

Calculation of employees productivity on tuesdays : Calculation of Employees Productivity

Project involves selling widgets-what is euro-denominated : The project involves selling widgets: you project a sales volume of 50,000 widgets per year, sales price of $20 per widget with a contribution margin of $15 per widget. The spot exchange rate is $1.50 = €1.00. The cost of capital to the Irish firm fo..

Cornerstone of organizational effectiveness : 'Management is the cornerstone of organizational effectiveness, and the integrating activity that permeates every facet of the operations of the organization'.

Calculation of average stay of tourists in queensland hotels : Calculation of Average Stay of Tourists in Queensland Hotels

Covered as a workers compensation claim : It’s the end of the summer and your firm has its annual Family Picnic Day on the Saturday of Labor Day weekend. It is a big event: games for kids, a magician who makes balloon animals, tons of great food, kegs of beer, a band for musical entertainmen..

Grief and the workplace by mary ann hazen : Article Review: Grief and the Workplace by Mary Ann Hazen

User Account

All Pages