14%, calculate

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter27: Multinational Financial Management
Section: Chapter Questions
Problem 14P
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The US based company is investing in a 2-year project in Europe. The initial investment
is €10,000. The expected cash inflow in the year one is €6,000 and in the year two is
€8,000. The risk-free rate in US is 3% and Europe 2%. If the spot rate is $1.25/€ and the
required rate of return of the project is 14%, calculate the NPV of the project in dollars.
(A) The NPV of the project in dollars is $1,773.62.
(B) The NPV of the project in dollars is $1,704.32.
(C) The NPV of the project in dollars is $1,418.90.
(D) The NPV of the project in dollars is $1,989.74.
Transcribed Image Text:The US based company is investing in a 2-year project in Europe. The initial investment is €10,000. The expected cash inflow in the year one is €6,000 and in the year two is €8,000. The risk-free rate in US is 3% and Europe 2%. If the spot rate is $1.25/€ and the required rate of return of the project is 14%, calculate the NPV of the project in dollars. (A) The NPV of the project in dollars is $1,773.62. (B) The NPV of the project in dollars is $1,704.32. (C) The NPV of the project in dollars is $1,418.90. (D) The NPV of the project in dollars is $1,989.74.
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