A Firm Can Invest €10 Million in Its German Subsidiary

question 82

Essay

A firm can invest €10 million in its German subsidiary and receive a return of €4.3 million annually for 3 years. The spot rate is €1.6/$, the U.S. rate of inflation is expected to be 4% annually, and the German rate is expected to be 3% annually. If the appropriate risk-adjusted cost of capital in dollars is 14%, does the project appear to have a positive NPV?

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Definitions:

Stamens

The pollen-producing reproductive organ of a flower, consisting of an anther and a filament.

Carpels

The female reproductive organs of a flower, consisting of an ovary, a stigma, and usually a style, which can develop into fruits and seeds after fertilization.

XIST Gene

A gene that is crucial for X-chromosome inactivation, a process that occurs in females to prevent the overexpression of X-linked genes.

Barr Body

A Barr Body is an inactivated X chromosome found in the cell nuclei of female mammals, visible as a dense mass.