You Want to Invest in a Project in Canada

question 29

Multiple Choice

You want to invest in a project in Canada.The project has an initial cost of C$1.2 million and is expected to produce cash inflows of C$600,000 a year for 3 years.The project will be worthless after the first 3 years.The expected inflation rate in Canada is 4% while it is only 3% in the U.S.The applicable interest rate in Canada is 8%.The current spot rate is C$1 = $.69.What is the net present value of this project in Canadian dollars using the foreign currency approach?

• A)C$335,974
• B)C$342,795
• C)C$346,258
• D)C$349,721
• E)C$356,750

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Definitions:

Decision Making

The method of recognizing and selecting options according to the decision-maker's values, preferences, and convictions.

Cooperation

The process of groups of organisms working or acting together for common, mutual, or some underlying benefit, as opposed to working in competition for selfish benefit.

Functional Structure

An organizational design that groups employees by their similar skills, resource use, and expertise.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.