You want to invest in a project in Canada.The project has an initial cost of Can$318,000 and is expected to produce cash inflows of C$126,000 a year for 3 years.The project will be worthless after 3 years.The expected inflation rate in Canada is 3.2 percent.The applicable interest rate in Canada is 12.7 percent.Assume the current spot rate is Can$1 = $1.12.What is the net present value of this project in U.S.dollars using the foreign currency approach?

Question

Quizplus · Accepted Answer

NPV = (−Can$318,000 + Can$126,000 / 1.127¹ + Can$126,000 / 1.127² + Can$126,000 / 1.127³)($1.12 / Can$1)= −$21,249

You Want to Invest in a Project in Canada