In: Finance
Year 1 Year 2 Year 3 Year 4
NOK20,000,000 NOK30,000,000 NOK34,000,000 NOK40,000,000
The current exchange rate of the Norwegian kroner is $0.135. BAPS’ exchange rate forecast for the Norwegian kroner over the project’s lifetime is listed below:
Year 1 Year 2 Year 3 Year 4
$.13 $.14 $.12 $.15
Initial investment | $10 million | ||||
Cost of capital | 13% | ||||
Year | |||||
Particulars | 1 | 2 | 3 | 4 | |
Cash flows (NOK) | 2,00,00,000.00 | 3,00,00,000.00 | 3,40,00,000.00 | 4,00,00,000.00 | |
Exchange rate forecast ($/NOK) | 0.13 | 0.14 | 0.12 | 0.15 | |
Cash flows (US$) | 26,00,000.00 | 42,00,000.00 | 40,80,000.00 | 60,00,000.00 | |
PVF @ 13% | 0.88496 | 0.78315 | 0.69305 | 0.61332 | |
PV of Cash flow in US$ | 23,00,884.96 | 32,89,216.07 | 28,27,644.66 | 36,79,912.37 | |
PV of cash inflow | 1,20,97,658.05 | ----(1) | |||
Initial Investment | 1,00,00,000.00 | ----(2) | |||
NPV in US $ | 20,97,658.05 | ||||
Investment decision: Since the NPV is positive, the Norwegian project must be accepted. | |||||