MSDI
In addition to answering the questions below, an Excel Spreadsheet needs to be completed for this assignment

. Please include a printout of the spreadsheet along with your answers to any questions (below) which are not easily seen on the spreadsheet

. If you need more than one worksheet to complete the steps below, please turn in printouts of all your spreadsheets with this assignment

.
Steps/Questions
1

.
Assuming that the U

.S

. inflation rate is expected to be a constant 4% and the U

.S

. nominal WACC is 13%, use the International Fisher Effect (real interest rates are the same in all countries at any one time) to calculate the Spanish nominal WACC

.
2

.
Calculate the cash flow from the after-tax cost savings from the new equipment in years 1-10 (from exhibit 2 in the case)

.
3

.
Calculate the cash flow from the loss of the depreciation tax shield of the old equipment

.
4

.
Calculate the after-tax salvage value of the old equipment
5

.
Calculate the depreciation tax shield from the new equipment

.
6

.
Calculate the NPV (in pesetas) of this project

.
7

.
Using Relative Purchasing Power Parity, determine the expected exchange rate for each of the next ten years

.
8

.
Calculate the dollar cash flows based on the exchange rates you came up with

.
9

.
Calculate the NPV (in dollars) of this project

.
10

.
Look at the NPVs you calculated in pesetas and in dollars

. Look at the current peseta/dollar exchange rate

. Based on this exchange rate, is one NPV higher than the other, or are they both the same? How do you interpret these results?