My Math Forum (Int'l Finance) Compute NPV from project/parent's viewpoint

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 April 24th, 2013, 08:55 PM #1 Newbie   Joined: Apr 2013 Posts: 1 Thanks: 0 (Int'l Finance) Compute NPV from project/parent's viewpoint I am studying for my 3rd and final exam for my last semester of college and this problem is just giving me fits. I cannot seem to figure it out. Any help would be appreciated. And please show your work. Thanks! Question: Evaluate the following project from both a local and the parent's viewpoint (that is, find the NPV of the project in terms of $and ¥, respectively). 1) The foreign project has a life of three years. The initial investment on long-term capital is$30m. The required (one-time) increase in working capital is $5m. 2) Annual revenue in each of the three years will be ¥3000m. Annual costs of goods sold will be ¥1000m. 3) Japan: beta = 2, risk-free rate (Rf) = 5%, expected rate of return (Rm) = 8%, before-tax cost of debt (Rd) = 6%, 40% debt and 60% equity; U.S.: beta = 1.5, Rf = 3%, Rm = 10%, Rd = 5%, 40% debt and 60% equity. 4) Current spot rate: ¥100/$; Annual inflation rate in Japan is 4%; Annual inflation rate in the U.S. is 2%. 5) Corporate tax rate is 35%; straight-line depreciation method.

 Tags compute, finance, intl, npv, project or parent, viewpoint

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### the npv of the project is ï€¾ 0, but the npv of the parental viewpoint is ï€¼ 0.

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