# Present Value of Cash Flows in Dollars and Euros

You are a U.S. investor who is trying to calculate the present value of a ?5 million cash inflow that will occur one year in the future. The spot exchange rate is S = $1.25/? and the forward rate is F1 = $1.215/?. You estimate that the appropriate dollar discount rate for this cash flow is 4% and the appropriate euro discount rate is 7%.

a. What is the present value of the ?5 million cash inflow computed by first

discounting the euro and then converting it into dollars?

b. What is the present value of the ?5 million cash inflow computed by first

converting the cash flow into dollars and then discounting?

c. What can you conclude about whether these markets are internationally

integrated, based on your answers to parts (a) and (b)?

https://brainmass.com/economics/exchange-rates/present-value-cash-flows-dollars-euros-254375

#### Solution Preview

a. In this case we discount at the euro discount rate and then convert to $ using the spot exchange rate since the PV is af of now. The cash flow is at the end of 1 year. The PV of cash ...

#### Solution Summary

The solution explains how to calculate the present value of cash flows

Financial Accounting Questions and Calculations

4) Electronics Unlimited has the following capital structure: 60% stock, 10 % preferred stock, and 30% in debt. The after-tax cost of debt is 8%, the cost of preferred stock is 10%, and the cost of common stock is 15%. What is the Weighted Cost of Capital (WACC).

5) Your company's fixed costs are $2 million and variable costs are $5 million. If revenue is $9 million, what is the company's contribution margin?

b. What is the present value of $1,000 to be received in five years discounted back to the present at five percent?

c. What is the future value of $1,000 invested for 12 years at ten percent interest compounded annually?

d. What is the accumulated value of $1,000 received annually for five years at five percent?

10) a. A company has the following accounts: cash ($25,000), net income ($50,000) interest income ($12,000), accounts payable ($75,000), factory ($85,000), equity ($305,000), inventory ($75,000), and accounts receivable ($6,000). What is the current ratio for the company? Show your calculation

What is the return on equity? Show your calculation

12) Acme Consulting has the following operating data for last year.

Revenues $175,000

Supplies Expense $45,000

Salaries $70,000

Rent Expense $1,500

Accounts Payable $8,000

Administrative Expense $6,000

Cash collections from prior year's sales $10,000

What is income before tax?

13) If Acme Consulting has equity of $500,000, what is its return on equity (ignoring taxes)? What is its net profit margin?

15) If the Euro is currently trading at 1.29 to the US Dollar, how many dollars does it take to pay a 900 Euro bill?

17) Cash Flow

($000's)

January February March April May June

Sales 100 150 150 200 200 250

Collections

Current Month 10 15 15

Following Month 75 90 135

Total Receipts 85 105 150

Purchases of Inventory 60 80 120 120 150 150

Payment for Inventory 50 60 80 120

Payroll 30 30 30

Other Expenses 10 10 10 10 15 15

Total Payments 90 100 120

Net Cash Flow (5) 5 30

Receipts for sales occur in the same pattern as the first three months of the year. For example, February's $150,000 in sales are collected in February and March. Payments for purchases also follow the same lagging relationships as earlier in the year. On April 1 the staff receive a 10% pay increase (no change in employees or hours). What is the net cash flow for the month of June?

View Full Posting Details