You Are Analyzing a Project with an Initial Cost of £80,000

question 238

Multiple Choice

You are analyzing a project with an initial cost of £80,000. The project is expected to return £10,000
the first year, £40,000 the second year and £50,000 the third and final year. The current spot rate is £.56. The nominal risk-free return is 5 percent in the U.K. and 7 percent in Canada. The return relevant to the project is 8 percent in the U.K. and 9.25 percent in Canada. Assume that uncovered
Interest rate parity exists. What is the net present value of this project in dollars?

• A) $7,787
• B) $8,002
• C) $8,312
• D) $8,511
• E) $8,885

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Definitions:

Plantwide Overhead Rate

A single overhead rate computed by dividing total factory overhead by a base, applied throughout an entire manufacturing plant.

Plantwide Factory Overhead Rate

A single overhead absorption rate used throughout a factory to allocate indirect costs to products based on a common base, such as labor hours or machine hours.

Overhead Costs

General business expenses not directly attributable to creating products or services.

Departments

Distinct areas within an organization, each focusing on a specific aspect of the business operation, such as finance, marketing, or human resources.