Related to Checkpoint 193 International capital budgeting An

(Related to Checkpoint 19.3) (International capital budgeting) An American firm is considering a new lows, EB. measured in BLAs, the currency of Geeblastan, which are expected to be repatnated to the parent company in the United Stales essume the risk tree rate in the Unded States s 2 percent and that this pregects rskier than most and as such ? e fini has determ ned that it should requre aprenum of 15 over the risk free rate. Thus, the approprate discount rate for this project is 17 percent n addition, the current spot exchange rato s 0 8116BLAVS, and the 1-year forwand exchange rate is 0.8610BLA\'S. What is the project\'s NP Year Enter your answer in he answer box and then click Print Done All parts showing You have viewed this topic Last Visited Jul 11, 2018 1:45 AM

Solution

Year Cash Flow (in millions of BLA) PV @ 17% NPV @ 17% -7.25 millions of BLA 0 -16.00 -16.00 Spot rate BLA/$ 0.8116 1 4.00 3.42 2 4.00 2.92 NPV in $ -5.89 million $ 3 3.00 1.87 4 1.00 0.53