Use the Information for the Question(s) Below

question 27

Multiple Choice

Use the information for the question(s) below.
You are a U.S. investor who is trying to calculate the present value (PV) of £5 million cash inflow that will occur one year in the future. The spot exchange rate is S = $1.8839/£ and the forward rate is F₁ = $1.8862/£. The appropriate dollar discount rate for this cash flow is 5.32% and the appropriate £ discount rate is 5.24%.
-The present value (PV) of the £5 million cash inflow computed by first converting into dollars and then discounting is closest to ________.

• A) $8,950,495
• B) $8,954,615
• C) $8,943,695
• D) $8,961,420

---

Definitions:

Gross Profit Method

An inventory estimation method used to calculate the cost of goods sold and ending inventory, based on gross profit margins.

Market Value

Today's selling or buying price for services or assets in a trading environment.

Lower Of Cost

An accounting principle ensuring that inventory is reported at the lower of its original cost or its market value if the market value is less.

Market Rule

A guideline or principle applied to assess the acceptability, pricing, or regulation of goods and services in a market.