Question: You work for a U.S.-based firm that is considering a project in which it has an initial outlay of $1 million USD and expects to

You work for a U.S.-based firm that is considering a project in which it has an initial outlay of $1 million USD and expects to receive 5 million New Zealand dollars (NZD) in one year. The current NZD spot rate is $0.72. Your firm decides to purchase put options on NZD with an exercise price of $0.73 and a premium of $0.02 per unit to hedge the cash flow. Your firm decides that an appropriate required rate of return for this project is 20%. Determine the net present value of this project based on the forecast that the NZD is $0.70 at the end of one year.

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