10. Hermosa Components Revenue Growth Sales Price, and currency Risk Scennario.

Question

10. Hermosa Components Revenue Growth Sales Price, and currency Risk Scennario. Melindo Deane, a new analyst at Hernosa.and a recent MBA graduate, believes that it a Fundamental error to evaluate the Argentine project's prospective earings and cash flows in dollars, rather than first estimating their Argentine peso (Ps) value and then converting cash flow returns to the united states in dollars. She believes the correct method is use the end - year spot rate in 2012 of Ps. 50/$ and assume it will change in relation to purchasing power (she is assuming U.S inflation to be 5% per annum) She alsobelieves that Harmosa should use a risk -adjusted discount rate in Argentina which reflects Argentine capital costs (20%) is her estimate) and a risk-adjusted discount rate for the parent viewpoint capital budget, (18%) on the assumption that international projects in a risky currency environment should require a higher expected return than other lower -risk projects. How do these assumptions and changes after Hermosa's perspective on the proposed investment? Please assist me with this assignment.

Explanation / Answer

price at which purchases and sales of foreign goods take place.

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