Question

Asiatic Express is a US firm and is considering starting a project in Malaysia. The project would end in 4 years. The expected (required) rate of return is 20%. It requires an initial investment of $100,000 Malaysian dollars and the following yearly cashflows (all in Malaysian dollars) are:

$30,000 in year 1,

$50,000 in year 2,

$70,000 in year 3,

$90,000 in year 4.

Question

What is the cash flow to the parent in US dollars for year 1, year 2, and year 3? (3 points)

Question

What is the cumulated NPV at the end of year 3? (4 points) (use 2 decimal places for answers where required, remember to convert all in US dollars)

Answer 1

1.

Assuming a constant exchange rate of 0.23,

The cashflows in year 1 = 30,000×0.23 = USD 7036.48

Year 2 = 50,000×0.23 = USD 11,727.46

Year 3 = 70,000×0.23 = USD 16,418.44

2.

Cumulative NPV at the end of 3 years = CF1/(1+i) + CF2/(1+i)² + CF3/(1+i)³ - Initial cost

i = 20% = 0.2. So 1+i = 1.2

Initial cost = $100,000 Malaysian Dollars

Cumulative NPV = 30000/1.2 + 50000/1.2² + 70000/1.2³ - 100,000

= $231.48 Malaysian dollars

= 231.48×0.23 = USD 53.24

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