Question Details

Which method of direct foreign investment 


1. Accounting for Country Risk of Projects. Slidell Co. (a U.S. firm) considers a foreign project in
which it expects to receive 10 million euros at the end of this year. It plans to hedge receivables of
10 million euros with a forward contract. Today, the spot rate of the euro is $1.20, while the oneyear
forward rate of the euro is presently $1.24, and the expected spot rate of the euro in one year
is $1.19. The initial outlay is $7 million. Slidell has a required return of 18%.
There is a 20% chance that political problems will cause a reduction in foreign business, such that
it would only receive 4 million euros at the end of one year. Determine the expected value of the
net present value of this project.


2. Which method of direct foreign investment should utilize a higher discount rate in the capital
budgeting analysis? Would this strengthen or weaken the tentative decision of establishing a
subsidiary in Thailand?



Business Management Assignment Help, Business Management Homework help, Business Management Study Help, Business Management Course Help