A firm can invest €10 million in its German subsidiary and receive a return of €4.3 million annually for 3 years. The spot rate is €1.6/$, the U.S. rate of inflation is expected to be 4% annually, and the German rate is expected to be 3% annually. If the appropriate risk-adjusted cost of capital in dollars is 14%, does the project appear to have a positive NPV?

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The Answer of A firm can invest €10 million in its German subsidiary and receive a return of €4.3 million annually for 3 years. The spot rate is €1.6/$, the U.S. rate of inflation is expected to be 4% annually, and the German rate is expected to be 3% annually. If the appropriate risk-adjusted cost of capital in dollars is 14%, does the project appear to have a positive NPV?

A Firm Can Invest €10 Million in Its German Subsidiary