Question
In: Finance
An Australian multinational company is planning a project in the UK. The costs and expected cash...
An Australian multinational company is planning a project in the UK. The costs and expected cash flows for the project are as follows:
Project 1:
|
Year 0 |
Year 1 |
Year 2 |
Year 3 |
|
−£8,000,000 |
£2,440,000 |
£3,335,000 |
£3,590,000 |
Exchange rate:
|
Year 0 |
Year 1 |
Year 2 |
Year 3 |
|
A$1.9550/£ |
A$1.8502/£ |
A$2.0251/£ |
A$2.2004/£ |
The company uses a discount rate of 10% for all projects. Is the project acceptable for cash flows assessed in Australian Dollar (A$)? Also, determine payback period of the project for cash flows converted to Australian Dollar (A$).
Solutions
Expert Solution
NPV is -A$19,379.54 (negative) when cash flows are assessed in Australian Dollar. Since NPV is negative, the project is not acceptable.
Details of calculation as follows:
Pay back period (ordinary) for cash flows converted to Australian Dollar= 2.55 years. Calculation as follows:
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