PLEASE NOTE THAT ASSIGNMENT WILL BE TURNED IN THROUGH TURNITIN, THEREFORE IT CANNOT BE PLAGIARIZED!
Read Chapters 16, 17 & 18
Answer the following questions using the “TURNITIN” link directly below these instructions. Late work is not accepted. Refer to the Class Schedule for due dates.
Review the political risk factors, and identify those that could
possibly affect your business. Explain how your cash flows could be
b. Explain why any threats of terrorism due to
friction between two countries could possibly your business, even if the
terrorism has no effect on the relations between the U.S. and Mexico.
c. Assume there is an upcoming election in Mexico that may result in a complete change in government.
d. Explain why such an election can have significant effects on your cash flows.
Assume that your business is considering expansion within Mexico. You
plan to invest a small amount of U.S. dollar equity into this project,
and finance the remainder with debt. You can obtain debt financing for
the expansion in Mexico , but the interest rates in Mexico are higher
than in the U.S. Yet, if you used mostly U.S. debt financing, you are
more exposed to exchange rate risk. Explain why.
b. If you
pursue a new project in Mexico , you want to assess the feasibility of
the project if you use mostly U.S. debt financing, versus mostly Mexican
debt financing. Yet, you also want to capture possible exchange rate
effects on your cash flows over time. How can you use capital budgeting
to conduct your comparison?
c. You would prefer to avoid using
Mexican debt to finance your expansion in Mexico because the interest
rates are high. A consultant suggests that you seek one or more
investors in Mexico who would be willing to take an equity position in
your business. You would provide them with periodic dividends and they
would be partial owners of your company. The consultant suggests that
this strategy circumvents the high cost of capital in Mexico because it
uses equity financing instead of debt financing. Is the consultant
a. Recall from the previous
chapter that your business is considering expansion within Mexico.
Recall that you plan to invest a small amount of U.S. dollar equity into
this project, and finance the remainder with debt. You can obtain debt
financing for the expansion in Mexico , but the interest rates in
Mexico are higher than in the U.S. Today, you receive credit offers from
different banks. You can either obtain a fixed-rate loan in the U.S. at
8 percent for the life of this project, or a floating-rate loan (rate
changes each year in response to market interest rates) in Mexico at 10
percent. Explain how you could estimate the net present value of the
project for each alternative financing method. Include in your
explanation how you would account for the uncertainty of future interest
rate movements of the Mexican debt.