Carpet_Baggers_NPV

# Carpet_Baggers_NPV - 13 Carpet Baggers Inc is proposing to...

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Given Information: Spot Rates USD/EUR 1.3 CHF/USD 1.5 Interest Rates USA 5% Switzerland 4% Euro Countries 6% Hurdle Rate 10% Year 0 1 2 3 4 5 Germany (mm EUR) -60 10 15 15 20 20 Switzerland (mm CHF) -120 20 30 35 35 35 Germany: There are two ways to get the NPV. Both methods will give you the same answer. 1. The first is to discount the Germany cash flows by the Germany discount rate and then convert to USD using t 2. The second is to convert the Germany cash flows each year into USD using forward rates, then discount the c Method 1: Since the cash flows are in EUR, we first need to find the cost of capital in EUR. (1+Cost of Capital EUR) = (1+Cost of Capital in USD) * (1+EUR interest rate) / (1+USD interest rate) Cost of Capital EUR = 1.1*1.06/1.05-1 = 11.0476% 11.05% Year 0 1 2 3 4 5 Germany (mm EUR) (60.0) 10.0 15.0 15.0 20.0 20.0 PV of Cash Flows (mm EUR) (60.0) 9.0 12.2 11.0 13.2 11.8 NPV of Cash Flows (mm EUR) 7.8 NPV of Cash Flows (mm USD) \$10.12 Method 2: Year 0 1 2 3 4 5 Germany cash Flow (mm EUR)

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## This note was uploaded on 08/17/2011 for the course FIN 480 taught by Professor All during the Spring '11 term at Kaplan University.

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Carpet_Baggers_NPV - 13 Carpet Baggers Inc is proposing to...

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