International Pooch is headquartered in Canada, but is considering the construction of a plant in Japan. If they use the foreign currency approach to calculating the NPV, they will:
1) Discount yen cash flows at the required return on yen investments;
2) Compute the NPV in yen;
3) Convert the yen NPV to a dollar NPV.

Question

Quizplus · Accepted Answer

Using the foreign currency approach to calculate NPV involves discounting cash flows in the foreign currency (in this case, yen) at the required return on investments in that currency, computing the NPV in the foreign currency, and then converting that NPV into the home currency (dollars).

International Pooch Is Headquartered in Canada, but Is Considering the Construction