Question

In: Finance

You want to invest in a project in Winterland. The project has an initial cost of...

You want to invest in a project in Winterland. The project has an initial cost of WM1,040,000 and is expected to produce cash inflows of WM446,000 a year for three years. The project will be worthless after three years. The expected inflation rate in Winterland is 3.7 percent while it is 2.6 percent in the U.S. The applicable interest rate in Winterland is 6.25 percent. The current spot rate is WM1 = US$.87. What is the net present value of this project in U.S. dollars using the foreign currency approach? (Find the NPV in WDM, then convert to US$ using the spot rate) $17,591.43 $15,410.28 $12,760.33 $13,733.66 $14,094.72

Solutions

Expert Solution

Calculation of NPV
6.25%
Year Captial Operating cash Annual Cash flow PV factor Present values
0         (1,040,000)    (1,040,000) 1.000    (1,040,000)
1               446,000         446,000 0.941         419,765
2               446,000         446,000 0.886         395,073
3               446,000         446,000 0.834         371,833
Net Present Value         146,670
Conversion rate             0.870
NPV in USD 146,670*0.87
NPV in USD         127,603
So option C is correct

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

You want to invest in a project in Greenland. The project has an initial cost of...
You want to invest in a project in Greenland. The project has an initial cost of G$776,000 and is expected to produce cash inflows of G$397,000 a year for three years. The project will be worthless after three years. The expected inflation rate in Greenland is 4.2 percent while it is 1.2 percent in the U.S. The applicable interest rate in Greenland is 5.87 percent. The current spot rate is G$1 = US$.12. What is the net present value of...
Maria Corporation Limited (MCL) is interested to invest in a project. The initial cost of the...
Maria Corporation Limited (MCL) is interested to invest in a project. The initial cost of the project is Rs. 11.5 million with the salvage value of Rs. 2 million. The project will generate generates revenue of Rs 15 million per year with variable cost of Rs. 6 million and other expenses of Rs. 4 million. The revenue and cost/expense will expected to increase by 5% per annum for first 3 years and 7.5% for last 2 years. MCL’s cost of...
Imaging you want to invest in a project with a lifetime of 5 years. The revenue...
Imaging you want to invest in a project with a lifetime of 5 years. The revenue of this project comes from selling products. Initiating the project requires $100,000 investment on non-depreciable assets with no salvage value. The operating cost is estimated as $50,000 in the first year (at the end of the interval). You expect to produce and sell 1000 units of products per year (consider the revenue at the end of intervals). Operating cost and products unit price will...
Calculate the capitalized cost of a project that has an initial cost of P4,000,000 and an...
Calculate the capitalized cost of a project that has an initial cost of P4,000,000 and an additional cost of P100,000 at the end of every 10 yrs. The annual operating costs will be P100,000 at the end of every year for the first 4 years and P160,000 thereafter. In addition, there is expected to be recurring major rework cost of P350, 000 every 13 yrs. Assume i =12%
You are analyzing a project with an initial cost of £48,000. The project is expected to...
You are analyzing a project with an initial cost of £48,000. The project is expected to return £11,000 the first year, £36,000 the second year and £38,000 the third and final year. There is no salvage value. The current spot rate is £0.6211. The nominal return relevant to the project is 12 percent in the U.S. The nominal risk-free rate in the U.S. is 4 percent while it is 5 percent in the U.K. Assume that uncovered interest rate parity...
You are evaluating the following project. All $ are in millions Initial cost of the project...
You are evaluating the following project. All $ are in millions Initial cost of the project at t=0 is $70. Annual cash flows from the project depends on the demand for the product and is estimated to be as follows: With probability of 30%, the demand is high and the annual cash flow is $45 With probability of 40%, the demand is average and the annual cash flow is $30 With probability of 30%, the demand is low and the...
You are evaluating the following project. All $ are in millions Initial cost of the project...
You are evaluating the following project. All $ are in millions Initial cost of the project at t=0 is $70. Annual cash flows from the project depends on the demand for the product and is estimated to be as follows: With probability of 30%, the demand is high and the annual cash flow is $45 With probability of 40%, the demand is average and the annual cash flow is $30 With probability of 30%, the demand is low and the...
A project has an initial cost of $350. The project has annual cash inflows of $200,...
A project has an initial cost of $350. The project has annual cash inflows of $200, $160, $100, and $150, for the next four years, respectively. The discount rate is 25%. What is the discounted payback period of the project? a.  the project never pays back b.  1 year c.  2 years d.  3 years e.  4 years
a. You are planning an investment in a project with an initial cost of $ 80,000....
a. You are planning an investment in a project with an initial cost of $ 80,000. That project is expected to produce an NCF of $ 20,000 annually for the next six years. your expected rate of return is 10%. Compute for that project the following: payback period, net present value, internal rate of return, and profitability index. b. A company is considering two independent projects between them. The initial cost for project A is $ 50,000 and for project...
Assume ABC Company has chosen to invest in new manufacturingequipment. The initial cost of the...
Assume ABC Company has chosen to invest in new manufacturing equipment. The initial cost of the equipment is $1,200,000. The equipment has a useful life of 20 years. The company uses straight-line depreciation. Their tax rate is 30%. Their weighted average cost of capital is 10%. The new equipment is expected to increase net cash flows by $500,000 in year 1, $350,000 in years 2 through 4, and $100,000 in years 5 through 10. Using all four investment assessment methods...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT