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Multinational Capital Budgeting

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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$15 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 present value of the project value?

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Solution Summary

The solution explains how to carry out a capital budgeting analysis in a multinational scenario

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