An MNC Is Considering Establishing a Two-Year Project in New

question 19

Multiple Choice

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?

• A) about NZ$11 million.
• B) about NZ$15 million.
• C) about NZ$31 million.
• D) about NZ$37 million.
• E) about NZ$25 million.

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