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Find the euro-zone cost of capital.

Find the euro-zone cost of capital.

Essentials Of Investments
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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Consider the following international investment opportunity. It involves a gold mine that can be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up. Year 0 + -€64,000 Year 1 Year 2 €160,000 -€100,000 The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 6 percent and in the euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of this risk is 8 percent. Find the euro-zone cost of capital. Write it down in percent with two decimals places.
Transcribed Image Text:Consider the following international investment opportunity. It involves a gold mine that can be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up. Year 0 + -€64,000 Year 1 Year 2 €160,000 -€100,000 The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 6 percent and in the euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of this risk is 8 percent. Find the euro-zone cost of capital. Write it down in percent with two decimals places.
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