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Uneven Cash Flows & Purchasing Power vs. Inflation

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At an inflation rate of 9 percent, the purchasing power of RM1 would be cut in half in
8.04 years. How long to the nearest year would it take the purchasing power of RM1 to
be cut in half if the inflation rate were only 4 percent?

A project with a 3-year life has the following probability distributions for its possible endof-
year cash flows in each of the next three years:
Year 1 Year 1 Year 1
Prob Cash Flow Prob Cash Flow Prob Cash Flow
0.30 RM300 0.15 RM100 0.25 RM200
0.40 500 0.35 200 0.75 800
0.30 700 0.35 600
0.15 900
Using an interest rate of 8 percent, find the expected present value of these uncertain
cash flows.

Kamel recently invested RM2,566.70 in a project that promises 12 percent rate of return
per year. The cash flows are expected to be as follows:
1 RM325
2 400
3 550
4 ?
5 750
6 800
What is the cash flow at the end of the 4th year?

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Solution Summary

In this solution three problems of cash flows have been computed and explained. Two include uneven cash flows and the third illustrates the decrease in the purchasing power with inflation. An Excel file shows all computations.

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Prepare a 2000-word proposal in which you select the optimal financing and investment strategy for your scenario. Include a PowerPoint file summarizing your proposal with at least 5 slides.
Include the following information in your proposal:

o Identify which country you chose and why. Use India and Brazil

o Identify foreign exchange rate data.

o Use foreign exchange and cost of capital data to determine appropriate capital sources.

o Conduct a sensitivity analysis, based on the following questions:

What if funds are blocked? How does this affect the parent organization?

What if the subsidiary provided funds?

How does the source of capital affect the subsidiary and parent organization?

What sources of capital would minimize the cost of capital to the subsidiary?

What happens if the country you chose provides incentives to invest? Now that your organization is profitable, the country is taking incentives back. How do you determine the residual value at the end of the project life?

How is the value of an organization determined from the following perspectives?

o Expiration of project life
o Friendly or unfriendly buyout
o Economic decision to change locations
o Nationalization or confiscation of organization

Format your paper according to APA standards.

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