Newsat Telco is planning on investing $40 billion in Europe this year for a satellite...
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Newsat Telco is planning on investing $40 billion in Europe this year for a satellite communications system. The expected cashflow over the next three years is 20.6 billion Euros per year growing at the rate of inflation. After three years, they will abandon the system as worthless. The European current and expected inflation rate is 5.2% per annum over this period and the U.S. inflation rate is expected to be 2.8% per annum. The current exchange rate is $0.9 /Euro. Newsat has a U.S. cost of capital of 15%.
Describe the important factors that should be taken into consideration when forecasting cash flows from foreign investment.
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