You Are Analyzing a Very Low-Risk Project with an Initial

question 16

Multiple Choice

You are analyzing a very low-risk project with an initial cost of £120,000. The project is expected to return £40,000 the first year,£50,000 the second year and £60,000 the third and final year. The current spot rate is £.54. The nominal return relevant to the project is 4 percent in the U.K. and 3 percent 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) $33,232
• B) $34,040
• C) $34,067
• D) $34,422
• E) $35,009

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Definitions:

Capital Gains

The profit earned from selling an asset for more than its original purchase price.

Total Returns

The overall return on an investment, including both capital gains and income, over a specific period.

Common Stock

An ownership stake in a corporation that provides the shareholder with voting capabilities and a claim on the company's profits through dividends.

Stock Of Small Firms

Stock Of Small Firms refers to the equity securities issued by companies with a small market capitalization, often characterized by higher volatility and potentially higher growth prospects than larger companies' stocks.