A Canadian firm is planning to make an investment in the UK.The firm estimates that the project will generate a single cash flow of 1 million GBP after one year.If the one year forward exchange rate is 2.12 CAD/GBP,and the Canadian cost of capital is 5.4%,what is the PV of the project cash flow?

Question

Quizplus · Accepted Answer

The present value (PV) of the project cash flow is calculated by converting the future cash flow from GBP to CAD using the forward exchange rate and then discounting it using the Canadian cost of capital. The calculation is: PV = (1,000,000 GBP * 2.12 CAD/GBP) / (1 + 0.054) = 2,120,000 CAD / 1.054 = 2,010,436 CAD, which is approximately $2.01 million.

A Canadian Firm Is Planning to Make an Investment in the UK.The