Market observes the “exchange rates” as of today:($1/$0)=0.95 , ($2/$0)=0.87 1. What is the implied interest rate between time t=0 and t=2 ? 2. Now there is a project with three certain cashflows: CF0=−$10MM CF1=$5MM CF2=$7MM What is NPV0? 3. How much is CF1 worth at t=2?

Market observes the “exchange rates” as of today:($1/$0)=0.95 , ($2/$0)=0.87 1. What is the implied interest rate between time t=0 and t=2 ? 2. Now there is a project with three certain cashflows: CF0=−$10MM CF1=$5MM CF2=$7MM What is NPV0? 3. How much is CF1 worth at t=2?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

Market observes the “exchange rates” as of today:($1/$0)=0.95 , ($2/$0)=0.87

1. What is the implied interest rate between time t=0 and t=2 ?

2. Now there is a project with three certain cashflows:
CF0=−$10MM
CF1=$5MM
CF2=$7MM
What is NPV0?

3. How much is CF1 worth at t=2?

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