Page 44 - Demo

%u062c%u0645%u064a%u0639 %u0627%u0644%u062d%u0642%u0648%u0642 %u0645%u062d%u0641%u0648%u0638%u0629 %u0640 %u0627%u0625%u0644%u0639%u062a%u062f%u0627%u0621 %u0639%u0649%u0644 %u062d%u0642 %u0627%u0645%u0644%u0624%u0644%u0641 44 %u0628%u0627%u0644%u0646%u0633%u062e %u0623%u0648 %u0627%u0644%u0637%u0628%u0627%u0639%u0629 %u064a%u0639%u0631%u0636 %u0641%u0627%u0639%u0644%u0647 %u0644%u0644%u0645%u0633%u0627%u0626%u0644%u0629 %u0627%u0644%u0642%u0627%u0646%u0648%u0646%u064a%u0629The inflation rate in the EGP is %uf070EGP = 20%, the inflation rate in dollars is %uf070$ = 3%, and the business risk of the investment would lead an unlevered U.S.-based firm to demand a return of i$ = 15%. If PPP is expected to hold between the two countries, and the current exchange rate is S0($/EGP) = 0.021 $/EGP.Should a U.S. MNC accept this Egyptian opportunity?Answer with method 1:EGP %u201345,0000EGP20,0001EGP50,0002EGP30,0003CF0 = (EGP45,000)%u00d7 S0($/EGP) =(EGP45,000)%u00d7 0.021 = $945- The expected exchange rate S1($/EGP), can be found with PPP:S ($/EGP) = 1+%uf070$X S ($/EGP)= 1+0.03 X 0.021= $0.018/EGP1 1+%uf070EGP0 1+0.20CF1 = EGP20,000 %u00d7 S1($/EGP) = EGP20,000 %u00d7 $0.018/EGP = $360- The expected exchange rate S2($/EGP), can be found with PPP:S ($/EGP) = ( 1+%uf070$)2X S ($/EGP)= ( 1+0.03 )2X 0.021= $0.016/EGP2 1+%uf070EGP0 1+0.20CF2 = EGP50,000 %u00d7 S1($/EGP) = EGP20,000 %u00d7 $0.018/EGP = $773- The expected exchange rate S3($/EGP), can be found with PPP:S ($/EGP) = ( 1+%uf070$)3X S ($/EGP)= ( 1+0.03 )3X 0.021= $0.013/EGP3 1+%uf070EGP 0 1+0.20CF3 = EGP30,000 %u00d7 S1($/EGP) = EGP30,000 %u00d7 $0.013/EGP = $398- The value of NPV with interest rate i$ = 15%:NPV in $ = -945 + 360 /(1+ .15)+773/(1+ .15)2+ 398/(1+.15)3= -945 +1,160= 215$NPV is positive, so a U.S. MNC can accept the project.