An Australian firm is evaluating a proposal to build a new plant in the United States. 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 percent, while the discount rate in $US is 12 percent and the spot rate is $US0.60/$A. Calculate the NPV of the project in $US.
A)+36.40
B)−21.84
C)+13.10
D)+21.84

Question

Quizplus · Accepted Answer

The NPV in $US can be calculated using the given cash flows and the discount rate in $US. The formula for NPV is: NPV = Σ [Ct / (1 + r)^t] - C0, where Ct is the cash flow at time t, r is the discount rate, and C0 is the initial investment. Plugging in the values:NPV = -100 + (40 / (1 + 0.12)^1) + (50 / (1 + 0.12)^2) + (65 / (1 + 0.12)^3) = -100 + 35.71 + 39.93 + 46.20 = 21.84

An Australian Firm Is Evaluating a Proposal to Build a New