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QUESTIONS :
1.
Petrus Company has a unique opportunity to invest in a two-year project in Australia. The project is expected to generate 1,000,000 Australian dollars (A$) in the first year and 2,000,000 Australian dollars in the second. Petrus would have to invest $1,500,000 in the project. Petrus has determined that the cost of capital for similar projects is 14%. What is the net present value of this project if the spot rate of the Australian dollar for the two years is forecasted to be $.55 and $.60, respectively? a. $2,905,817. b. -$94,183. c. $916,128. d. none of the above.
2.
Microsoft
has excess cash of $10,000,000,000, which it can invest for three years.
It can either go for a three-year dollar deposit paying 3.2% or a three-year yen
deposit paying 2% since it expects the yen to appreciate 1% per annum
against the dollar in the next three years.Which option is best to
invest. Show your complete calculations
of the return at the end of the three-year. Assume that the
annual interest amount is reinvested, i.e. compounds, at the same annual interest rate.
Would your answer change if outlook for the yen to appreciate 1.5% per
year?
