Stein Inc. is planning to establish a subsidiary in Australia to manufacture and sell cars locally. It will need an initial investment of 8 million U.S. dollars (US$) to set up the manufacturing facility. The project will end in 3 years and then the parent company will be paid A$8 million for transferring ownership of the Australian subsidiary to the Australian government. The payment from the Australian government is net of tax and is not subject to the withholding tax. After paying for income and withholding taxes, the subsidiary is expected to remit A$8 million, A$9 million, and A$10 million at the end of year 1, 2, and 3, respectively. Stein Inc. assumes that the future spot rate of the Australian dollar will stay the same at $0.95 over the next three years. The company decides to hedge 60% of the remitted net cash flows (excluding the salvage value) using forward contracts at the rate of US$0.91/A$ for the next three years. If the company’s required rate of return is 10%, what is the NPV in US$ of this project? You can assume that the U.S. government does not charge tax for the A$ income.

a. US$12,579,324

b. US$18,226,687

c. US$12,667,168

d. US$18,289,316