Question

a. Currently USD/SEK is 6.7

1y US Risk free rate is 6%

1y Sweden risk free rate is 5%

Therefore the 1y USD/SEK forward rate = 6.7 * e^(0.05-0.06)*1 = 6.6333 (since F = S0 * e^(Rfc-Rdc)*t) where S0 is the spot rate, Rfc is the RFR in foreign country, Rdc is RFR in domestic currency and t is the time

b. Currently outlay in SEK = 2000*6.7 = SEK 13400

Inflow at the end of 1 year = 3850 * 6.6333 = 25538.34 (If 1y forward USD receipts are hedged)

The NPV = -13400 + 25538.34/1.20 = SEK 7881.95 (since risk adjusted cost of capital is 20%)

The Rate of Return = ((25538.34/13400)-1)*100 = 90.58%

#### Earn Coins

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
• ### Quantitative Problem: International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners...

Quantitative Problem: International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC'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 \$2,850 and a cash inflow the following year of \$3,750. IMC estimates that its risk-adjusted cost of capital is 16%. Currently, 1 U.S. dollar will buy 7.0 Swedish kronas. In addition, 1-year risk-free securities in the United States are yielding 2%, while...

• ### Quantitative Problem: International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners...

Quantitative Problem: International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC'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 \$2,900 and a cash inflow the following year of \$3,700. IMC estimates that its risk-adjusted cost of capital is 18%. Currently, 1 U.S. dollar will buy 6.0 Swedish kronas. In addition, 1-year risk-free securities in the United States are yielding 2%, while...

• ### Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a...

Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine'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 \$2000 and a cash inflow the following year of \$2400. Sandrine estimates that its risk-adjusted cost of capital is 14%. Currently, 1 U.S. dollar will buy 0.78 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 6.75%, while similar securities in Switzerland...

• ### Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a...

Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine'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. Sandrine estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 0.74 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 7%, while similar securities in Switzerland...

• ### Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a...

Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine'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 \$2000 and a cash inflow the following year of \$2400. Sandrine estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 0.71 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 7.75%, while similar securities in Switzerland...

• ### Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a...

Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine'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 \$2000 and a cash inflow the following year of \$2400. Sandrine estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 0.83 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 6%, while similar securities in Switzerland...

• ### blank 1 reinvestment / repatriation / revaluation blank 2 reinvestment / repatriation / revaluation Although the...

blank 1 reinvestment / repatriation / revaluation blank 2 reinvestment / repatriation / revaluation Although the same basic principles of capital budgeting apply to both foreign and domestic operations, there are some key differences. First, cash flow estimation is more complex for overseas investments. Most multinational firms set up separate subsidiaries for each foreign country in which they operate. The relevant cash flows for the parent company are the dividends and royalties paid by the subsidiaries to the parent, translated...

• ### Excel Online Structured Activity: Foreign capital budgeting Sandrine Machinery is a Swiss multinational manufacturing company. Currently,...

Excel Online Structured Activity: Foreign capital budgeting Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine'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 \$2000 and a cash inflow the following year of \$2400. Sandrine estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 0.84 Swiss franc. In addition, 1-year risk-free securities in the United States are...

• ### tivity: Foreign capital budgeting a Search this cour Excel Online Structured Activity: Foreign capital budgeting Sandrine...

tivity: Foreign capital budgeting a Search this cour Excel Online Structured Activity: Foreign capital budgeting Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine'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 \$2000 and a cash inflow the following year of \$2400. Sandrine estimates that its risk-adjusted cost of capital is 13%. Currently, 1 U.S. dollar will buy 0.75 Swiss franc. In...

• ### Quantitative Problem 1: Suppose that 1 Swedish krona could be purchased in the foreign exchange market...

Quantitative Problem 1: Suppose that 1 Swedish krona could be purchased in the foreign exchange market today for \$0.4. If the krona appreciated 9% tomorrow against the dollar, how many kronas would a dollar buy tomorrow? Round your answer to 2 decimal places. Do not round intermediate calculations. kronas Quantitative Problem 2: Suppose the exchange rate between the U.S. dollar and the South African rand was 10 rand = \$1 and the exchange rate between the U.S. dollar and the...