The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. The project's expected dollar cash flows consist of an initial investment of $1 million with cash inflows of $700,000 in Year 1 and $600,000 in Year 2. The risk-adjusted cost of capital for this project is 12%. The current exchange rate is 1,069 won per U.S. dollar.
Risk-free interest rates in the United States and S. Korea are:
1-Year
United States 4%, S. Korea 3%
2-Year
United States 6.25% S. Korea 5.25%
A. If this project were instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value generated by this project? Round your answer to the nearest cent. = $
B. What would be the rate of return generated by this project? Round your answer to two decimal places. = %
C. What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places. = won per U.S. $
D. What is the expected forward exchange rate 2 years from now? Round your answer to two decimal places. = won per U.S. $