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Plz solve sfm forex query urgently..

Final 631 views 1 replies

Dimple

Student

364 Points Joined October 2009

Please friends solve the question urgently...

An indian firm is considering the possibility of building a plant to manufacture an Industrial chemical in Thailand. The cost of investment is estimated to be Baht 25 million. The life of the invt. is expected to be 12 yrs. It is expected the annual net cash flow in real terms will be 4Baht Million. The current spot exchange rate is 1Baht=1.105 INR. the risk free interest rate in thailand and india are 12% & 10% respc. The expected inflation rate in thailand is 8%. the indan firm considers the opportunity coc to be 7.25% above the risk free rate. Should the Indian firm make invt. in thailand? Show NPV calculations in INR using cash flows in (a) Baht (b) INR

Thanks in advance..

Replies (1)

CHARTERED BISHU

FINANCE MANAGER

49 Points Joined August 2009

here dimpy, this is simple question .

we can use the concept of (1+Money rate)= (1+Return) (1+Inflation rate ) in India, since it is assumed that reurnin real term must be the same .also, using the IRPT ( FOREX CHAPTER) , we can find the RATE after 1 to 12 year, MUltiply the cash flows , and get INR Inflows.

calculate NPV Using INR . and then Convert these into Baht.

Vice - versa.

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