1) One year ago, the American investor bought 1000 shares of London Bridges at price of= £22 (or 22 UK pounds) per share when exchange rate was= $1.5/1£ (or $1.50 dollars = 1 pound). Investor also invested 800,000 Japanese Yen in money market fund in Japan last year when exchange rate was 85 Yen = $ 1 US.
(a) B y using current exchange rates, what is today’s value of investor’s portfolio in U.S. dollars if UK investment decreased 5% (in local currency) and Japan investment increased 1% (in local currency)?
(b) Determine the overall rate of return on portfolio over last year?
2) American firm is estimating the investment in Mexico. Project will need purchasing equipment from variety of sources and shipping it to Mexico. Projected cost of buying equipment and shipping it is $3.7 million. Once project begins operations, it is expected to last for five years (suppose straight line depreciation). Expected sales are $1,700,000 each year in U.S. and costs of project are projected to be 6 million pesos each year for the five years. If taxes are 35%, the suitable discount rate is 9% and you use present exchange rate for pesos:
(a) Compute NPV in U.S. dollars.
(b) Compute NPV in Mexican pesos.