A US-Based Firm Is Planning to Make an Investment in Europe

question 48

Multiple Choice

A U.S.-based firm is planning to make an investment in Europe. The firm estimates that the project will generate cash flows of 200,000 euros after one year. If the one-year forward exchange rate is $1.40/euro and the dollar cost of capital is 9%, what is the present value (PV) of the project cash flows?

• A) $232,981
• B) $245,198
• C) $256,881
• D) $268,880

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Definitions:

Corporate Profits

The earnings of a corporation after all expenses have been deducted from revenues.

Labor Unions

Organizations formed by workers from related fields that work for the betterment of their members' employment conditions.

Proprietors' Income

Earnings received by owners of unincorporated businesses from their business activities.

Total Income

The combined earnings from wages, investments, and other sources before any deductions are made.