You Are Analyzing a Project with an Initial Cost Of \le

question 61

Multiple Choice

You are analyzing a project with an initial cost of $\le$ 80,000.The project is expected to return $\le$ 10,000 the first year, $\le$ 40,000 the second year and $\le$ 50,000 the third and final year.The current spot rate is $\le$ .56.The nominal risk-free return is 5% in the U.K.and 7% in the U.S.The return relevant to the project is 8% in the U.K.and 9.25% in the U.S.Assume that uncovered interest rate parity exists.What is the net present value of this project in U.S.dollars?

• A)$7,787
• B)$8,002
• C)$8,312
• D)$8,511
• E)$8,885

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Definitions:

Utility Function

A mathematical representation that ranks preferences or satisfaction levels consumers derive from different bundles of goods.

Perfect Substitutes

Products or goods that can replace each other perfectly with no loss of utility to the consumer.

Utility Function

A mathematical representation of a consumer's preference ranking over a set of goods or services, indicating satisfaction levels.

Units Of X

A generic term for measuring quantities of a variable or unspecified item, labeled as 'X'.