Mark Duncan owns a furniture manufacturing firm in the United States. He is considering an investment in Japan which will have the following cash flows: Initial cost = ¥-300,000,000, Year 1 = ¥150,000,000, Year 2 = ¥200,000,000, Year 3 = ¥250,000,000 and Year 4 = ¥100,000,000. The appropriate discount rate that should be used to discount yen-denominated cash flows is 11%. Calculate the NPV of the project, if Duncan plans on converting the NPV from Yen into U.S. dollars at the current spot rate of ¥123/$.

Question

Quizplus · Accepted Answer

To calculate the answer you just need to calculate the NPV in Japanese Yen using a discount rate of 11%. This will give you a NPV of ¥246,130,565. You then need to convert that figure into U.S. dollars at the current spot rate, which will give you $2,001,062.

Mark Duncan Owns a Furniture Manufacturing Firm in the United