5 Lakonishok Equipment has an investment opportunity in Europe. The project costs €15,450,000 and is expected to produce cash flows of €4,050,000 in Year 1, €5,050,000 in Year 2, and €5,450,000 in Year 3. The current spot exchange rate is $.74/€ and the current risk-free rate in the United States is 2.9 percent, compared to that in euroland of 2.1 percent. The appropriate discount rate for the project is estimated to be 9 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9,950,000. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Answer is complete but not entirely correct. $ 3,570,391.95 NPV
5 Lakonishok Equipment has an investment opportunity in Europe. The project costs €15,450,000 and is expected to produce cash flows of €4,050,000 in Year 1, €5,050,000 in Year 2, and €5,450,000 in Year 3. The current spot exchange rate is $.74/€ and the current risk-free rate in the United States is 2.9 percent, compared to that in euroland of 2.1 percent. The appropriate discount rate for the project is estimated to be 9 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9,950,000. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Answer is complete but not entirely correct. $ 3,570,391.95 NPV
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:5
Lakonishok Equipment has an investment opportunity in Europe. The project costs
€15,450,000 and is expected to produce cash flows of €4,050,000 in Year 1,
€5,050,000 in Year 2, and €5,450,000 in Year 3. The current spot exchange rate is
$.74/€ and the current risk-free rate in the United States is 2.9 percent, compared to that
in euroland of 2.1 percent. The appropriate discount rate for the project is estimated to
be 9 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be
sold at the end of three years for an estimated €9,950,000.
What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations
and enter your answer in dollars, not in millions of dollars, rounded to 2 decimal
places, e.g., 1,234,567.89.)
X Answer is complete but not entirely correct.
NPV
$
3,570,391.95 x
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