A Canadian Firm Is Considering Purchasing a Subsidiary in Great $\le$

question 253

Multiple Choice

A Canadian firm is considering purchasing a subsidiary in Great Britain. The subsidiary will cost $\le$ 16 million and will generate cash inflows of $\le$ 7.6 million per year at the end of each of the next three years. After that, the company will be worthless. The current exchange rate is $\le$ 0.83 British pounds per $1. The Canadian inflation rate is expected to be 4% over this period. The current risk-free rate of interest in Canada is 5% and the risk-free rate in Great Britain is 8%.

What is the approximate rate of inflation in Great Britain?

• A) 2%
• B) 5%
• C) 7%
• D) 8%
• E) 10%

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