An Australian firm is evaluating a proposal to build a new plant in the United States. The expected cash flows in $US (in millions)are as follows: Year 0, −100; Year 1, 40; Year 2, 50; Year 3, 65. The discount rate in $A is 10 percent, while the discount rate in $US is 12 percent and the spot rate is $US0.85/$A. Calculate the NPV in $A.
A)+25.69
B)−21.84
C)+13.10
D)+21.84

Question

Quizplus · Accepted Answer

The correct answer is A because the NPV in $A is +25.69. The NPV is calculated as follows:NPV = -100 + 40/(1.10)^1 + 50/(1.10)^2 + 65/(1.10)^3= -100 + 36.36 + 41.82 + 50.45= +25.69

An Australian Firm Is Evaluating a Proposal to Build a New