question archive An MNC is considering establishing a two-year project in New Zealand with a $30 million initial investment
An MNC is considering establishing a two-year project in New Zealand with a $30 million initial investment
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An MNC is considering establishing a two-year project in New Zealand with a $30 million initial investment. The firm's cost of capital is 12%. The required rate of return on this project is 18%. The project is expected to generate cash flows of NZ$12 million in Year 1 and NZ$30 million in Year 2, excluding the salvage value. Assume no taxes, and a stable exchange rate of $.60 per NZ$ over the next two years. All cash flows are remitted to the parent. What is the break-even salvage value?
Hint: use this formula below
Break-even
salvage
= [Initial outlay − PV of cash flows] (1 + k) m
value
about NZ$11 million.
about NZ$15 million.
about NZ$19 million.
about NZ$22 million.
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