You Want to Invest in a Project in Canada That

question 42

Multiple Choice

You want to invest in a project in Canada that has an initial cost of C$812,000 and is expected to produce cash inflows of C$340,000 a year for three years. The project will be worthless after the three years. The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S. The applicable interest rate for the project in Canada is 12 percent. Assume the current spot rate is C$1 = $.7874. What is the net present value of this project in Canadian dollars?

• A) −C$1,889
• B) −C$2,924
• C) C$4,623
• D) C$6,139
• E) C$7,528

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Definitions:

Stockholder

An individual or entity that owns shares in a corporation, thereby having a claim on part of its assets and earnings.

Indefinitely

For an unlimited or unspecified period of time, without a predetermined end point.

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A systematic series of steps involved in collecting, recording, summarizing, and presenting the financial transactions of a business.

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