Noble Energy is considering is considering the establishment of a subsidiary in Brunei. The initial...
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Noble Energy is considering is considering the establishment of a subsidiary in Brunei. The initial investment required by the parent is $25,000,000. If the project is undertaken, Noble Energy would terminate the project after three years. Nobles cost of capital is 20% for parent company as well as all its new projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows from the Brunei subsidiary will generate over the project's lifetime in Bruneian dollars (BND)):
Year 1 BND15,000,000
Year 2 BND20,000,000
Year 3 BND30,000,000
The current exchange rate of the Bruneian dollar (BND) is $.72. Noble Energy' exchange rate forecast for BND is as follows over the project's lifetime:
Year 1 $0.72
Year 2 $0.72
Year 3 $0.72
What is the net present value of the Brunei project?
a. -$10,000,000
b. $40,000,000
c. $21,600,000
d. $6,500,000
e. $2,000,000
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