A U.S. company is considering a high-technology project in a foreign country. The estimated economic results for

Question:

A U.S. company is considering a high-technology project in a foreign country. The estimated economic results for the project (after taxes), in the foreign currency (T-marks), is shown in the following table for the seven-year analysis period being used. The company requires an 18% rate of return in U.S. dollars (after taxes) on any investments in this foreign country.
End of Year Cash Flow (T-marks after Taxes)
0...............................-3,600,000
1..................................450,000
2...............................1,500,000
3...............................1,500,000
4...............................1,500,000
5...............................1,500,000
6...............................1,500,000
7...............................1,500,000
a. Should the project be approved, based on a PW analysis in U.S. dollars, if the devaluation of the T-mark, relative to the U.S. dollar, is estimated to average 12% per year and the present is 20 T-marks per dollar?
b. What is the IRR of the project in T-marks?
c. Based on your answer to (b), what is the IRR in U.S. dollars?
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...