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.)
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.)
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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Question
mni.3
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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