Question

Question 1
Chanyi Corp. currently has no existing business in Canada but is considering establishing a
subsidiary there. The following information has been gathered to assess this project:
The initial investment required is $80 million in Canada dollars (CA$). Given the
Existing spot rate of $.60 per Canada dollar, the initial investment in U.S. dollars is $48
million. In addition to the CA$80 million initial investment for plant and equipment, CA$30
million is needed for working capital and will be borrowed by the subsidiary from a Canada
bank. The Canada subsidiary will pay interest only on the loan each year, at an interest rate
of 16 percent. The loan principal is to be paid in 10 years.
• The project will be terminated at the end of Year 4, when the subsidiary will be sold
• The price, demand, and variable cost of the product in Canada are as follows:
Year Price
1 CA$550
Demand Variable Cost
30,000 units CA$35​

Answer 1

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Answer 2

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