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Net Present Value - Petrus Company

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Petrus Company has a unique opportunity to invest in a two-year project in Australia. The project is expected to generate 1,000,000 Australian dollars (A$) in the first year and 2,000,000 Australian dollars in the second. Petrus would have to invest $1,500,000 in the project. Petrus has determined that the cost of capital for similar projects is 14%. What is the net present value of this project if the spot rate of the Australian dollar for the two years is forecasted to be $.55 and $.60, respectively?

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Solution Summary

The net present value for Petrus Company is examined in Australian Dollar.

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NPV = PV of cash flows - Initial investment

The initial investment is in US$ while the cash flows are in Australian dollars. We ...

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