A Canadian fiRm Is Considering Purchasing a Subsidiary in Great

question 211

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 pounds of this project
Using the foreign currency approach?

• A) £347,023
• B) £406,093
• C) £443,592
• D) £524,474
• E) £553,246

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Definitions:

Clairvoyance

The purported psychic ability to gain information about an object, person, location, or physical event through extrasensory perception.

Psychometry

The psychological measurement of mental functions and behaviors, often through standardized tests.

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The use of facial muscles to convey emotions or reactions.

Speech Intonation

The variation of pitch in speech that can alter the meaning and convey emotion.