A Canadian fiRm Is Considering Purchasing a Subsidiary in Great

question 220

Multiple Choice

A Canadian firm is considering purchasing a subsidiary in Great Britain. The subsidiary will cost £16 million and will generate cash inflows of £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 £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%.[LINE][LINE]Assume the cost
Of capital for this project is 18.45% on pound investments. What is the NPV in dollars of this project
Using the foreign currency approach?

• A) $294,405
• B) $489,269
• C) $524,963
• D) $631,896
• E) $832,095

---

Definitions:

Mutually Beneficial

A situation or agreement that provides advantages to all parties involved.

Persuasive Message

Communication intended to influence the attitudes, beliefs, or behaviors of the recipient.

Direct Format

Involves presenting information straightforwardly and clearly without unnecessary embellishments or details.

Sales Messages

Communications crafted to persuade potential customers to purchase a product or service, focusing on benefits and value.