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Managerial Economics 7th Edition by Paul Keat ,Philip Young,Steve Erfle
Edition 7ISBN: 978-0133020267Managerial Economics 7th Edition by Paul Keat ,Philip Young,Steve Erfle
Edition 7ISBN: 978-0133020267 Exercise 1
The Great Computer Company, a U.S. corporation, has a subsidiary in the Netherlands. It is deciding whether to invest $2 million of its (the parent's) funds in a 3-year project in the Netherlands.
The aftertax cash flows to the subsidiary are estimated to be as follows (in euros):
The entire cash flows of the subsidiary are remitted to the parent annually. There is no additional tax (nor credit) in the parent country.
The exchange rate today is €1/$1.20. The exchange rate forecast for the next 3 years is the following:
The cost of capital for both the parent and the subsidiary is 13 percent.
a. What is the NPV of this project to the Netherlands' subsidiary
b. What is the NPV of this project to the U.S. parent
c. Should the project be accepted
The aftertax cash flows to the subsidiary are estimated to be as follows (in euros):
The entire cash flows of the subsidiary are remitted to the parent annually. There is no additional tax (nor credit) in the parent country.The exchange rate today is €1/$1.20. The exchange rate forecast for the next 3 years is the following:
The cost of capital for both the parent and the subsidiary is 13 percent.a. What is the NPV of this project to the Netherlands' subsidiary
b. What is the NPV of this project to the U.S. parent
c. Should the project be accepted
Explanation
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a) NPV of the project to the Netherland'...
Managerial Economics 7th Edition by Paul Keat ,Philip Young,Steve Erfle
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