You Want to Invest in a Project in Canada

question 80

Multiple Choice

You want to invest in a project in Canada.The project has an initial cost of C$2.2 million and is expected to produce cash inflows of C$900,000 a year for 3 years.The project will be worthless after the first 3 years.The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S.The applicable interest rate for the project in Canada is 13 percent.The current spot rate is C$1 = $0.8158.What is the net present value of this project in Canadian dollars?

• A)-C$91,889
• B)-C$87,924
• C)-C$74,963
• D)C$165,139
• E)C$167,528

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Definitions:

Rationales

Explanations or reasons for an action or belief, often used to justify decisions and behaviors.

Primacy Effect

The tendency to remember information at the beginning of a list better than information in the middle or at the end.

Halo Effect

A cognitive bias where an individual's overall impression of a person influences how they feel and think about that person's character.

Phi Phenomenon

A perceptual illusion in which stationary objects shown in rapid succession, such as lights flashing at certain speeds, appear to be moving.