Exam 18: International Capital Budgeting

Find the euro-zone cost of capital to compute is the dollar-denominated NPV of this project.

The firm's tax rate is 34%. The firm's pre-tax cost of debt is 8%; the firm's debt-to-equity ratio is 3; the risk-free rate is 3%; the beta of the firm's common stock is 1.5; the market risk premium is 9%. Calculate the weighted average cost of capital.

What is the unlevered after-tax incremental cash flow for year 30?

Using the APV method, what is the value of this project to an all-equity firm?

What is CF0 in dollars?

Find the IRR in dollars for the American firm if they wait one year to buy the bond after the exchange rate rises to S₁($|€) = $1.80 per €. Assume that i_€ doesn't change.

What is CF5 in dollars?

Estimate the value of the option on the land to the management of the mine.

Find the ex post IRR in euro for the American firm if they buy the bond today and then the exchange rate rises to S₁($|€) = $1.80 per €.

The required return on equity for a levered firm is 10.60%. The debt to equity ratio is ½ the tax rate is 40%, the pre-tax cost of debt is 8%. Find the cost of capital if this firm were financed entirely with equity.

Find the NPV in euro for the French firm if they wait one year to undertake the project after the exchange rate falls to S₁(€|£) = €1.80 per £.

Find the IRR in euro for the French firm if they wait one year to undertake the project after the exchange rate rises to S₁(€|£) = €2.20 per £.

Repeat the above project analysis assuming that the Irish firm could replicate the project in Ireland. (i.e. cash flow out the project in Ireland and find break-even price (in €), quantity, NPV, IRR (in euro not dollars).

Assume that XYZ Corporation is a leveraged company with the following information: Calculate the debt-to-total-market-value ratio that would result in XYZ having a weighted average cost of capital of 9.3%.

What is the dollar-denominated IRR of this project?

What is the euro-denominated IRR of this project?

Today is January 1, 2009. The state of Iowa has offered your firm a subsidized loan. It will be in the amount of $10,000,000 at an interest rate of 5% and have ANNUAL (amortizing) payments over 3 years. The first payment is due today and your taxes are due January 1 of each year on the previous year's income. The yield to maturity on your firm's existing debt is 8%. What is the APV of this subsidized loan? If you rounded in your intermediate steps, the answer may be slightly different from what you got. Choose the closest.

Today is January 1, 2009. The state of Iowa has offered your firm a subsidized loan. It will be in the amount of $10,000,000 at an interest rate of 5% and have ANNUAL (amortizing) payments over 3 years. The first payment is due December 31, 2009 and your taxes are due January 1 of each year on the previous year's income. The yield to maturity on your firm's existing debt is 8%. What is the APV of this subsidized loan? Note that I did not round my intermediate steps. If you did, your answer may be off by a bit. Select the answer closest to yours.

Find the ex post IRR in euro for the American firm if they buy the bond today and then the exchange rate falls to S₁($|€) = $1.40 per €.

The hedge fund manager notices the optionality in starting this project today. He asks you to comment and outline your valuation strategy.