Lakonishok Equipment has an investment opportunity in Europe. The project costs €9.5 million and is expected to produce cash flows of €1.6 million in Year 1, €2.1 million in Year 2, and €3.2 million in Year 3. The current spot exchange rate is €.94/$ and the current risk-free rate in the United States is 2.3 percent, compared to that in Europe of 1.8 percent. The appropriate discount rate for the project is estimated to be 13 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 €7.8 million. What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.) 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
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am. 120.

Lakonishok Equipment has an investment opportunity in Europe. The project costs €9.5
million and is expected to produce cash flows of €1.6 million in Year 1, €2.1 million in Year
2, and €3.2 million in Year 3. The current spot exchange rate is €.94/$ and the current
risk-free rate in the United States is 2.3 percent, compared to that in Europe of 1.8
percent. The appropriate discount rate for the project is estimated to be 13 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 €7.8 million.
What is the NPV of the project? (Do not round intermediate calculations and enter your
answer in dollars, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.)
NPV
Transcribed Image Text:Lakonishok Equipment has an investment opportunity in Europe. The project costs €9.5 million and is expected to produce cash flows of €1.6 million in Year 1, €2.1 million in Year 2, and €3.2 million in Year 3. The current spot exchange rate is €.94/$ and the current risk-free rate in the United States is 2.3 percent, compared to that in Europe of 1.8 percent. The appropriate discount rate for the project is estimated to be 13 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 €7.8 million. What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89.) NPV
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