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) Convert all yen cash flows into dollars;
2) Discount the dollar cash flows at the firm's required return for dollar denominated cash flows;
3) Compute the NPV in yen.

Question

Quizplus · Accepted Answer

The foreign currency approach involves converting all foreign currency (yen) cash flows into the domestic currency (dollars) and discounting these dollar cash flows at the firm's required return for dollar-denominated cash flows. The NPV is computed in dollars, not yen.

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