You have an investment opportunity in Germany that requires an investment of $250,000 today and will produce a cash flow of €208,650 in one year with no risk.Suppose the risk-free rate of interest in Germany is 6% and the current competitive exchange rate is €0.78 to $1.00.What is the net present value (NPV)of this project? Would you take the project?
A)NPV = 0; No
B)NPV = 2358; No
C)NPV = 2358; Yes
D)NPV = 13,650; Yes
E)NPV = $36,225; Yes

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to convert the cash flow from euros to dollars using the exchange rate. 
208,650 euros * 0.78 = $162,981 
Then we need to discount this cash flow back to its present value using the risk-free rate: 
NPV = -$250,000 + $162,981 / (1 + 0.06) = $2,358 
Since the NPV is positive, we should take the project.

You Have an Investment Opportunity in Germany That Requires an Investment