A Canadian firm is evaluating an investment in Indonesia. The project costs 500 billion Indonesian rupiah and

Question:

A Canadian firm is evaluating an investment in Indonesia. The project costs 500 billion Indonesian rupiah and it is expected to produce an income of 250 billion Indonesian rupiah a year in real terms for each of the next 3 years. The expected inflation rate in Indonesia is 12% per year and the firm estimates that an appropriate discount rate for the project would be about 8% above the risk-free rate of interest. Calculate the net present value of the project in dollars. Assume a spot exchange rate of $.000112/Rupiah. The interest rate is about 15% in Indonesia and 5% in Canada.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...