Explore BrainMass
Share

# International Finance and Capital Budgeting Analysis

1) An MNC is considering establishing a two year project in New Zealand with a \$30 million initial investment. The firm's cost of capital is 12%. The required rate of return on this project is 18%. The project is expected to generate cash flows of NZ\$12 million in Year 1 and NZ\$30 million in Year 2, excluding the salvage value. Assume no taxes, and a stable exchange rate of \$.60 per NZ\$ over the next two years. All cash flows are remitted to the parent. What is the break-even salvage value?
A) about NZ\$11 million.
B) about NZ\$15 million.
C) about NZ\$31 million.
D) about NZ\$37 million.
E) about NZ\$25 million.

2) Other things being equal, a blocked funds restriction is more likely to have a significant adverse effect on a project if the currency of that country is expected to _______ over time, and if the interest rate in that country is relatively ______.
A) depreciate; low
B) appreciate; high
C) depreciate; high
D) appreciate; low

#### Solution Preview

1) An MNC is considering establishing a two year project in New Zealand with a \$30 million initial investment.  The firm's cost of capital is 12%.  The required rate of return on this project is 18%.  The project is expected to generate cash flows of NZ\$12 million in Year 1 and NZ\$30 million in Year 2, excluding the salvage value.  Assume no taxes, and a stable exchange rate of \$.60 per NZ\$ over the next two years.  All cash flows are remitted to the parent.  What is the ...

#### Solution Summary

The solution explains how to carry out a capital budgeting analysis in a multinational scenario. Calculations are provided in the attached Excel sheet.

\$2.19