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Global_Finance_Final

Global_Finance_Final - Global Finance Final Exam Part 2...

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Global Finance Final Exam: Part 2 December 06 - 08, 2011 Part 1 – Multiple Choice = 60% weight Part 2 – Illustrative Question = 40% weight Question 1 (20 Points) An MNC is considering establishing a twoyear 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? 21. Question 3 (20 Points) Assume the following information for Pexi Co., a U.S.-based MNC that is considering obtaining funding for a project in Germany: U.S. risk-free rate = 4% German risk-free rate = 5% Risk premium on dollar-denominated debt provided by U.S. creditors = 3% Risk premium on euro-denominated debt provided by German creditors = 4% Beta of project = 1.2 Expected U.S. market return = 10% U.S. corporate tax rate = 30%
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