You Want to Invest in a Project in Canada

question 183

Multiple Choice

You want to invest in a project in Canada. The project has an initial cost of C$1.6 million and is expected to produce cash inflows of C$750,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Canada is 5 % while it is only 3.5 % in the U.S. The applicable interest rate for the project in Canada is 12 %. The current spot rate is C$1 = $0.8637. What is the net present value of this project in Canadian dollars using the foreign currency approach?

• A) C$187,924
• B) C$201,373
• C) C$246,460
• D) C$265,139
• E) C$267,528

---

Definitions:

Near-term Activities

Tasks or projects that are scheduled to be completed or take place in the immediate future.

Overall Strategies

Comprehensive approaches taken by businesses to achieve their long-term objectives and ensure growth.

Tactical Planning

Implementing the activities specified by strategic plans.

Hurricane

A type of tropical cyclone characterized by low-pressure centers, strong winds, and heavy rain, capable of causing significant weather-related disasters.