Question: Suppose a firm has just made an investment in France
Suppose a firm has just made an investment in France that will generate $2 million annually in depreciation, converted at today's spot rate. Projected annual rates of inflation in France and in the United States are 7% and 4%, respectively. If the real exchange rate is expected to remain constant and the French tax rate is 50%, what is the expected real value (in terms of today's dollars) of the depreciation charge in year 5, assuming that the tax write-off is taken at the end of the year?
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