You want to invest in a project in Canada.The project has an initial cost of C$290,000 and is expected to produce cash inflows of C$120,000 a year for three years.The project will be worthless after three years.The expected inflation rate in Canada is 3.6 percent while it is 2.7 percent in the U.S.The applicable interest rate in Canada is 11.5 percent.The current spot rate is C$1 = $.97.What is the net present value of this project in U.S.dollars using the foreign currency approach?

Question

Quizplus · Accepted Answer

NPV = (-C$290,000 + C$120,000/1.115¹ + C$120,000/1.115² + C$120,000/1.115³)× ($.97/C$1)= $692.90

You Want to Invest in a Project in Canada