A Project Has an Initial Cost of £80,000 and Is

question 45

Multiple Choice

A project has an initial cost of £80,000 and is expected to return £10,000 the first year,£40,000 the second year,and £50,000 the third and final year.Assume the current spot rate is £.75.Also assume the nominal risk-free return is 3 percent in the U.K.and 5 percent in the U.S.The return relevant to the project is 7.8 percent in the U.K.and 8.1 percent in the U.S.Assume uncovered interest rate parity exists.What is the net present value of this project in U.S.dollars using the home currency approach?

• A)$9,787
• B)$11,002
• C)$10,312
• D)$10,511
• E)$9,514

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Definitions:

Coverdell Education Savings Account

A tax-advantaged savings account designed to pay for education expenses from kindergarten through post-secondary.

AGI

Stands for Adjusted Gross Income, which is an individual's total gross income minus specific deductions allowed by the IRS, important for determining taxable income.

Coverdell Education Savings Account

An investment account in the United States that offers tax benefits to incentivize saving for upcoming educational costs.

AGI

Adjusted Gross Income, which is gross income minus adjustments, used to determine tax liability.