Risk-adjusted cost of capital
Solitaire Machinery is a Swiss multinational manufacturing company. Currently, Solitaire’s financial planners are considering whether to undertake a 1-year project in the United States. The project’s expected dollar-denominated cash flows consist of an initial investment of $1,000 and a cash inflow the following year of $1,200. Solitaire estimates that its risk-adjusted cost of capital is 12%. Currently, 1 U.S. dollar will buy 0.77 Swiss francs. In addition, 1-year risk-free securities in the United States are yielding 5%, while similar securities in Switzerland are yielding 3.25%.