You Want to Invest in a Riskless Project in Sweden

question 24

Multiple Choice

You want to invest in a riskless project in Sweden. The project has an initial cost of SKr2.1 million and is expected to produce cash inflows of SKr810,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Sweden is 2 percent while it is 5 percent in the U.S. A risk-free security is paying 6 percent in the U.S. The current spot rate is $1 = SKr7.55. What is the net present value of this project in Swedish krona using the foreign currency approach? Assume that the international Fisher effect applies.

• A) SKr185,607
• B) SKr191,175
• C) SKr196,910
• D) SKr197,867
• E) SKr202,818

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Definitions:

Oceanic Plateaus

Large, flat, elevated areas of the seabed, formed by volcanic activity and often found in the deep ocean.

Mantle Plumes

Columns of hot, solid material that rise from deep within the Earth's mantle and can cause volcanic hotspots.

Seamounts

Submerged mountain ranges or isolated peaks formed by volcanic activity beneath the ocean surface, often rising several thousand feet from the seabed.

Volcanic Eruptions

The process where magma, ash, and gases are expelled from a volcano, significantly impacting the surrounding environment.