What is the dollar amount of cash flows

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Reference no: EM132175163

Question - Your firm is an MNC headquartered in the United States. You have been tasked with estimating the weighted average cost of capital (WACC) given the following information:

Firm's bond yield:	8%
Treasury rate:	3%
Beta:	1.5
Expected market return:	11%
Target Capital Structure:	30% debt, 70% equity
Tax bracket:	35%

Texas Co. (TC) established a subsidiary in Russia two years ago. Under its original plans, TC intended to operate the subsidiary for a total of four years. Exchange forecasts suggest the ruble will likely depreciated from the current level of $0.033 to $0.028 to $0.025 over the next few years. TC could sell the subsidiary today for 5 million rubles to a potential acquirer. If TC continues to operate the subsidiary, it will generate cash flows of 3.5 million rubles next year and 4.5 million rubles in the following year. These cash flows would be remitted back to the parent in the U.S. The required rate of return of the project is 15 percent.

Should TC continue operating the Russian subsidiary?

You are evaluating a project and are trying to determine the cash flows in dollars your firm needs to receive in five years to accept the project. The necessary information is:

If you accept the project, your firm will receive 10 million Indian Rupee in 5 years, lump sum guaranteed

Spot rate for Indian Rupee is $0.06.

Annualized interest rate in United States for 5 year period is 5 percent.

Annualized interest rate in Thailand for 5 year period is 17 percent.

Interest parity exists.

Plan is to hedge cash flows with a forward contract.

What is the dollar amount of cash flows that firm will receive in five years if it accepts this project?

Reference no: EM132175163

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