b. You are considering invest in a riskless project in Canada. The project has an initial...

Transcribed Image Text:

b. You are considering invest in a riskless project in Canada. The project has an initial cost of C$1.5 million and is expected to produce cash inflows of C$600,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Canada is 4 percent while it is 3.6 percent in the U.S. A risk-free security is paying 5.8 percent in the U.S. The current spot rate is C$1 = $0.8276. Assume the international Fisher effect applies. What is the net present value of this project in US dollars using the foreign currency approach? (12 marks) b. You are considering invest in a riskless project in Canada. The project has an initial cost of C$1.5 million and is expected to produce cash inflows of C$600,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Canada is 4 percent while it is 3.6 percent in the U.S. A risk-free security is paying 5.8 percent in the U.S. The current spot rate is C$1 = $0.8276. Assume the international Fisher effect applies. What is the net present value of this project in US dollars using the foreign currency approach? (12 marks)