Lakonishok Equipment has an investment opportunity in Europe. The project costs €15,150,000 and is expected to produce cash flows of €3,750,000 in Year 1, €4,750,000 in Year 2, and €5,150,000 in Year 3. The current spot exchange rate is $.82/€ and the current risk-free rate in the United States is 2.6 percent, compared to that in euroland of 2 percent. The appropriate discount rate for the project is estimated to be 8 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9,650,000. What is the NPV of the project in U.S. dollars?

Answer rating: 100% (QA)

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