You Are Analyzing a Project with an Initial Cost of £80,000

question 68

Multiple Choice

You are analyzing a project with an initial cost of £80,000. The project is expected to return £10,000 the first year,£40,000 the second year and £50,000 the third and final year. The current spot rate is £.56. The nominal risk-free return is 5 percent in the U.K. and 7 percent in the U.S. The return relevant to the project is 8 percent in the U.K. and 9.25 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) $7,787
• B) $8,002
• C) $8,312
• D) $8,511
• E) $8,885

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