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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 longterm capital is $30m. The required (onetime) increase in working capital is $5m. 2) Annual revenue in each of the three years will be ¥3000m. Annual costs of goods sold will be ¥1000m. 3) Japan: beta = 2, riskfree rate (Rf) = 5%, expected rate of return (Rm) = 8%, beforetax cost of debt (Rd) = 6%, 40% debt and 60% equity; U.S.: beta = 1.5, Rf = 3%, Rm = 10%, Rd = 5%, 40% debt and 60% equity. 4) Current spot rate: ¥100/$; Annual inflation rate in Japan is 4%; Annual inflation rate in the U.S. is 2%. 5) Corporate tax rate is 35%; straightline depreciation method. 

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