Discuss qualitatively what is the proper cost of capital to be considered by the Brazilian investors in France in the example above. Be precise on the assumptions you make on the Brazilian investors and the French project.

Discuss qualitatively what is the proper cost of capital to be considered by the Brazilian investors in France in the example above. Be precise on the assumptions you make on the Brazilian investors and the French project.

Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018

18th Edition

ISBN:9780079039897

Author:Carter

Publisher:Carter

Chapter7: Exponents And Exponential Functions

Section: Chapter Questions

Problem 68SGR

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Question

The Brazilian meat company SoCarnes wishes to start production in France. This new production is associated to a project with the following forecasted cash flows in euros (see table 1 below).

The cost of capital in France is 10%, and the spot exchange rate is 6.2 BR$ / 1€ (1 euro buys 6.2 Brazilian reals). The risk-free rate for Brazil is 7% and the risk-free rate for France is 3%.

Table 1

Year	0	1	2	3	4	5
CF (in euros)	-1000	290	320	370	400	400

Discuss qualitatively what is the proper cost of capital to be considered by the Brazilian investors in France in the example above. Be precise on the assumptions you make on the Brazilian investors and the French project.

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