Use the Information for the Question(s)below

question 74

Multiple Choice

Use the information for the question(s) below.
You are a Canadian investor who is trying to calculate the present value (PV) of a 15 million British pound cash inflow that will occur one year from now.The spot exchange rate is 1.5742 CAD/GBP and the forward rate is F₁ = 1.5682 CAD/GBP.The appropriate dollar discount rate for this cash flow is 1.05% and the appropriate British pound discount rate is 1.45%.
-What is the present value of the pound cash inflow computed by first discounting the pounds and converting them into dollars?

• A)$23,275,505
• B)$23,186,792
• C)$23,367,640
• D)$23,278,575
• E)$23,176,344

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Definitions:

Short-Run Equilibrium

A state in which market supply and demand balance each other, and as a result, prices become stable for a short period.

Constant Returns

A situation in economics where increasing the scale of production does not affect the long-run average cost of production, implying it remains constant.

Initial Plant Sizes

The original capacity or scale of a facility when it first begins operations.

Purely Competitive

Characterizes a theoretical market structure emphasizing perfect competition, where numerous small firms face no barriers to entering or exiting the market.