A Canadian fiRm Is Considering Purchasing a Subsidiary in Great

question 56

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]What is the
Approximate rate of inflation in Great Britain?

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