Consider the following international investment opportunity.It involves a gold mine that can be opened at a cost,then produces a positive cash flow,but then requires environmental clean-up. The current exchange rate is $1.60 = €1.00.The inflation rate in the U.S.is 6 percent and in the euro zone 2 percent.The appropriate cost of capital to a U.S.-based firm for a domestic project of this risk is 8 percent.
Find the euro-zone cost of capital to compute is the dollar-denominated NPV of this project.

Question

Consider the following international investment opportunity.It involves a gold mine that can be opened at a cost,then produces a positive cash flow,but then requires environmental clean-up.  The current exchange rate is $1.60 = €1.00.The inflation rate in the U.S.is 6 percent and in the euro zone 2 percent.The appropriate cost of capital to a U.S.-based firm for a domestic project of this risk is 8 percent.
Find the euro-zone cost of capital to compute is the dollar-denominated NPV of this project.

Quizplus · Accepted Answer

The Answer of Consider the following international investment opportunity.It involves a gold mine that can be opened at a cost,then produces a positive cash flow,but then requires environmental clean-up.  The current exchange rate is $1.60 = €1.00.The inflation rate in the U.S.is 6 percent and in the euro zone 2 percent.The appropriate cost of capital to a U.S.-based firm for a domestic project of this risk is 8 percent.
Find the euro-zone cost of capital to compute is the dollar-denominated NPV of this project.

Consider the Following International Investment Opportunity