Evaluating investment opportunity: Japan example
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You have an investment opportunity in Japan. It requires an investment of $1 million today and will produce a cash flow of Y114 in one year with no risk. Suppose the risk free interest rate in the US is 4%, the risk free interest rate in Japan is 2%, and the current competitive exchange rateis Y110 per $1. What is the NPV of the investment? Is it a good opportunity?
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Solution Summary
Discusses whether or not the given example is a positive or negative investment opportunity.
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NPV = PV of cash flows - initial investment
Since the initial investment is in $ and the cash flows are in Yen, we would need to convert the Yen ...
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