(a) Green Group reviews an invest opportunity in Australia. This is a two-year project and is expected to generate A$ 1,000,000 in the first year and A$ 2,000,000 in the second year. The group would have to invest US$ 1,500,000 in the project. The project’s cost of capital is 14% which is the same as the similar projects for Green Group. What is the net present value (NPV) of this project if the spot rate of the Australian dollar for the two years is forecasted to be $0.55 and $0.60, respectively?
(b) Green Group needs funding to finance the project in Australia. Comparing with other long-term financing means, the foreign currency bonds usually have lower yields. To determine the financing cost of the bond, suggest and describe any appropriate procedures.