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 1,073 won per U.S. dollar. Risk-free interest rates in the United States and S. Korea are:
Year 1: US: 3% S. Korea: 2%
Year 2: US: 5.75% S.Korea: 4.75%
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.
What would be the rate of return generated by this project? Round your answer to two decimal places.
b. What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places.
What is the expected forward exchange rate 2 years from now? Round your answer to two decimal places.
c. If Nam Sung undertakes the project, what is the net present value and rate of return of the project for Solitaire? Round your answers to two decimal places.