Explore BrainMass
Share

Explore BrainMass

    NPV of the project

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    A U.S Corporation as a subsidiary in Netherlands.

    It is deciding whether to invest 2 millions from the parent's funds in a 3 year project in the Netherlands.

    the after tax cash flows to the subsidiary are estimated to be as follows (in euros):
    Year 1 500.000
    year 2 800,000
    Year 3 900,000
    The entire cash flows of the subsidiary are remitted to the parent annually. There is no additional tax or credits in the parent company country.

    the exchange rate today is ₤1/$1.20
    the exchange rate forecast for the next 3 years is:
    Year 1 1/$1.15
    Year 2 1/$1.10
    Year 3 1/$1.05
    Cost of capital for both companies is 13%

    1) what is the NPV of this project for both companies
    2) should the project be accepted?

    © BrainMass Inc. brainmass.com October 9, 2019, 9:27 pm ad1c9bdddf
    https://brainmass.com/economics/exchange-rates/npv-of-the-project-185404

    Solution Preview

    A U.S Corporation as a subsidiary in Netherlands.

    It is deciding whether to invest 2 millions from the parent's funds in a 3 year project in the Netherlands.

    the after tax cash flows to ...

    Solution Summary

    This helps in computation of NPV of the project

    $2.19