An Australian firm is evaluating a proposal to build a new plant in the U.S.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%,while the discount rate in $US is 12% and the spot rate is $US0.60/$A.Calculate the NPV of the project in $US.

Question

Quizplus · Accepted Answer

The NPV in $US is calculated by discounting the cash flows at the $US discount rate of 12%. The NPV is: -100 + 40/(1.12) + 50/(1.12^2) + 65/(1.12^3) = +21.84 million.

An Australian Firm Is Evaluating a Proposal to Build a New