year 0

year 1
year 2
year 3
year 4
year 5
year 6

submit bid for proposal

-18 * 10,500 Rupiah
90,000
100,000
120,000
150,000
180,000 (includes residual value)

year 1
year 2
year 3
year 4
year 5
year 6

Net NPV calculation

-189,000
90,000
100,000
120,000
150,000
180,000

Part 1)

Using CAPM

R= .074 + .9(.08)
14.60%

Forward exchange rate

Spot exchange rate

In rupiahs
-832599.12
1746589.3
8549139.99
45193691.6
248863940
1315580301
1619101063

0.227
0.051529
0.011697083
0.002655238
0.000602739
0.000136822

IRR=

51%

Part 2)
Yes they should hedge their position by entering a forward contract or initiating a call option.
The forward contract will be entered by the promise of paying
1,619,933,583 rupiahs 1 year from the date.
Call and Put options are not feasible since they are so expensive.
Call option can be purchased by paying the premium.
It would be a year long call option.
1
5.34
1619933583 303358348.9
Put option can be purchased at 16.40.
1
16.4
1619933583 98776437.99
Part 3)
Under US GAAP you only has to disclose but not account for on the financial statements.
However if you aggregate the 10% probability for the course of period. You have
Year1
0.9
$121,464.17
Year2
0.81
$109,317.75
Year3
0.729
$98,385.98

Year4
Year5
Year6

0.6561
0.59049
0.531441

$88,547.38
$79,692.64
$71,723.38
$134,960.19

Part 4)
Under repatriation restrictions you earn interest
The project becomes more lucrative.
Year 1
Litigation Gain
Provision for Litigation Gain

2013062863

393961800.1
395493438

Year 6
Cash

2015427020
Litigation Gain
Project

With the expropriation risk

Year1
0.9
Year2
0.81
Year3
0.729
Year4
0.6561
Year5
0.59049
Year6
0.531441

395493438
1619933583

2013062863
2013062863
2013062863
2013062863
2013062863
2013062863

1811756577
1630580919
1467522827
1320770545
1188693490
1069824141

Part 5)
10 Billion rupiahs for following 6 years @ 15% interest.
flexible repayment
Year 1
10,000
0.15
Year 2
0.0225
Year 3
0.003375
Year 4
0.00050625
Year 5
7.59375E-05
Year 6
1.13906E-05

Difference=

0.15
0.15
0.15
0.15
0.15

1500
1500
1500
1500
1500
1500
9000

-832599.12
1746589.3
8549139.99
45193691.6
248863940
1315580301
1619101063

-4,000 You actually get a gain of 4,000 rupiah by taking on the loan

With expropriation risk

Year1
Year2
Year3
Year4

0.9
0.81
0.729
0.6561

1619105063
1619105063
1619105063
1619105063

1457194557
1311475101
1180327591
1062294832

Year5
Year6

0.59049
0.531441

1619105063
1619105063

956065349
860458814

Yield on 1 year Indonesian govt bond

0.227

orward exchange rate

pot exchange rate

11,996 to
10,500
Part 4)

In dollars
-79.295154
145.597641
712.665887
3767.39676
20745.5769
109668.248
134960.19

2.839761
2.386354
2.005339
1.685159
1.4161
1.19

1 dollar

PART 4 calculation
-2364382.4
4167979.77
17143925.6
76158556.1
352416226
1565540558
2013062863

-6,000
90,000
100,000
120,000
150,000
180,000

minus

1619101063

393961800

ng on the loan

-821,099
1745089.299
8547639.986
45192191.56
248862440.3
1315578801
1,619,105,063

18,000,000/1800
10000
600,000
6,000,000,000.00