An American firm is considering a new project in the country of Gleeblaistan. This new project will
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Question:
An American firm is considering a new project in the country of Gleeblaistan. This new project will produce the following cash flows measured in BLAs, the currency of Gleeblaistan, which are expected to be repatriated to the parent company in the U.S.
Year | Cash Flow (in millions of BLA) |
0 | -20 |
1 | 8 |
2 | 8 |
3 | 7 |
4 | 5 |
The current spot rate is 0.90BLA/$ and the risk free rates in the two countries are shown below:
1 year | 2 years | 3 years | 4 years | |
U. S. interest rate | 3.5 | 3.5 | 3.6 | 3.7 |
Gleeblaistan interest rate | 6.9 | 6.7 | 6.4 | 6.2 |
Assume that the American firm is borrowing in the U.S. at rate of 8%. What is the project’s NPV in U.S. dollars?
Related Book For
Financial Management Principles and Applications
ISBN: 978-0133423822
12th edition
Authors: Sheridan Titman, Arthur Keown, John Martin
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