ivity: Investment Timing Option Video Excel Online Structured Activity: Investment Timing Option All American Telephones Inc. is considering the production of a new cell phone. The project will require an investmen $17 million. If the phone is well received, the project will produce cash flows of $11 million a year for 3 years, but if market does not like the product, the cash flows will be only $1 million per year. There is a 50% probability of both good and bad market conditions. All American can delay the project a year while it conducts a test to determine whe demand will be strong or weak. The delay will not affect the dollar amounts involved for the project's investment ori cash flows-only their timing. Because of the anticipated shifts in technology, the 1-year delay means that cash flows will continue only 2 years after the initial investment is made. All American's WACC is 12%.

The east asiatic company (eac), a danish company with subsidiaries throughout asia, has been funding its bangkok subsidiary primarily with u.s. dollar debt because of the cost and availability of dollar capital as opposed to thai baht-denominated (b) debt. the treasurer of eac-thailand is considering a 1-year bank loan for $247,000.the current spot rate is b32.03 /$, and the dollar-based interest is 6.78% for the 1-year period. 1-year loans are 12.04% in baht.a. assuming expected inflation rates of 4.3 % and 1.24% in thailand and the united states, respectively, for the coming year, according to purchase power parity, what would the effective cost of funds be in thai baht terms? b. if eac's foreign exchange advisers believe strongly that the thai government wants to push the value of the baht down against the dollar by5% over the coming year (to promote its export competitiveness in dollar markets), what might the effective cost of funds end up being in baht terms? c. if eac could borrow thai baht at 13% per annum, would this be cheaper than either part (a) or part (b) above?