A Project Has an Initial Cost of £1

question 55

Multiple Choice

A project has an initial cost of £1.2 million and expected cash inflows of £400,000,£500,000,and £600,000 for Years 1 to 3,respectively.Assume the current spot rate is £.73 and the nominal risk-free returns are 4 percent in the U.K.and 3 percent in the U.S.If uncovered interest rate parity exists,what is the net present value of this project in U.S.dollars using the home currency approach? Assume the project's U.S.discount rate is 12 percent.

• A)−$56,359
• B)−$104,040
• C)−$71,067
• D)$26,422
• E)$92,009

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Definitions:

FIFO

"First In, First Out," an inventory valuation method where the first items purchased or produced are the first ones sold, impacting the value of remaining inventory.

Gross Profit

The financial measure obtained by subtracting the cost of goods sold from total sales revenue.

Ending Inventory

The worth of products ready for sale at the close of a financial period, determined by adding acquisitions to the initial stock and then deducting the expense of the goods that were sold.

FOB Shipping Point

A term indicating that the buyer takes responsibility for goods and their transportation costs once they leave the seller's premises.