Purchase Solution

# Net present value

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You are analyzing a project with an initial cost of 48,000 pounds. The project is expected to return 11,000 pounds the first year, 36,000 pounds the second year and 38,000 pounds the third and final year. There is no salvage value. The current spot rate is 0.6211 pounds. The nominal return relevant to the project is 12 percent in the US The nominal risk free rate in the US is 4% while it is 5% in the UK . Assume that uncovered interest rate parity exists. What is the net present value of this project in US dollars.?

a. \$23,611
b. \$25,938
c. \$26,930
d. \$29,639
e. \$30,796

##### Solution Summary

Calculates Net present value for a foreign project.

##### Solution Preview

You are analyzing a project with an initial cost of 48,000 pounds. The project is expected to return 11,000 pounds the first year, 36,000 pounds the second year and 38,000 pounds the third and final year. There is no salvage value. The current spot rate is 0.6211 pounds. The nominal return relevant to the project is 12 percent in the US The nominal risk free rate in the US is 4% while it is 5% in the UK . Assume that uncovered interest rate parity exists. What is the net present value of this project in US ...

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