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Essay / Research Paper Abstract
This 18 page paper looks at the Case of North Star, a company that is looking to invest in a project ion West Utopia. The paper answers a set of 6 questions which include a range of present net value (NPV) calculations and looks at the impact of three exchange rate scenarios. The paper also consider issues such as whether the initial required rate of return should remain the same there is going to be the use of borrowing, the value of using an excel spread sheet and whether any of the parity theories are correct. The bibliography cites 3 sources.
Page Count:
18 pages (~225 words per page)
File: TS14_TEnrthstar.rtf
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Unformatted sample text from the term paper:
to look at two different methods of funding the project and also consider the way in which the currency exchange rates may fluctuate and change the returns on the proposed
project. To look at this we need to calculate what the net present value (NPV)of the project is in terms of the home currency (DM). When we have worked
out the NPV of the project for each scenario we can then consider the impact of the exchange rate changes that may occur. Three different patterns of movement for the
exchange rate between the DM and the $ have been given with weighted likelihoods. The First Option Scenario 1 NPV calculation The use of an NPV calculations is
able to discount future net cash flows by a set discount level. In this case the company needs a return of 18% therefore we need to discount each years return
by 18% for ever year. This is the first stage as to ensure that the right calculation take place we need to make sure there is the required return of
18%. If this is not achieved in DM then it is not worth taking the calculation any further as it is assumed that the company would not want to rely
on exchange rate movements to create the required profit. Year Net cash flow (a) discount rate (b) discounted cash flow (a x b) Accumulative total Year 1 8,000,000 0.8475
6,779,661 6,779,661 Year 2 10,000,000 0.7182 7,181,844 13,961,505 Year 3 14,000,000 0.6086 8,520,832 22,482,338 Year 4 16,000,000 0.5158 8,252,622 30,734,960 Year 5 16,000,000 0.4371 6,993,747 37,728,707 Year 6 16,000,000 0.3704
5,926,905 43,655,612 End value 30,000,000 0.3704 11,112,946 54,768,558 Less initial investment 40,000,000 NPV 14,768,558 Here we can see that the project does give a return of 18% per annum as
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