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What is the expected forward exchange rate

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Reference no: EM132443235

Problem: Solitaire Machinery is a Swiss multinational manufacturing company.  Financial planners are considering undertaking a 1 year project in US.  Project expected dollar-denominated cash-flows consist of an initial investment of $1,000 and a cash inflow the following year of $1,200. 

Estimates that its risk-adjusted cost of capital is 12%

1 U.S. dollar will buy .90 Swiss franc

1 year risk-free securities in US are yielding 5%

similar securities in Switzerland are yielding 3.25%

Required:

Question 1: If this project was instead undertaken by a similar US 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?

Question 2: What is the expected forward exchange rate 1 year from now?

Question 3: If Solitaire undertake the project, what is the net present value and rate of return of the project for Solitaire?

Reference no: EM132443235

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