XJ Company from the United States is evaluating a proposal to build a new plant in the United Kingdom. The expected cash flows in pounds are as follows: Year 0, −50; Year 1, 25; Year 2, 35; Year 3, 40. The discount rate in BP is 14 percent and the discount rate in $US is 12 percent. The spot rate is $US1.99/BP. Calculate the NPV of the project in BP.
A)+28.69
B)+25.86
C)+42.67
D)+22.68

Question

Quizplus · Accepted Answer

The NPV in BP is calculated by discounting the cash flows at the BP discount rate of 14%. NPV = -50 + 25/(1.14) + 35/(1.14^2) + 40/(1.14^3) = +25.86.

XJ Company from the United States Is Evaluating a Proposal