00:01
Hello students, here is a question.
00:02
Lacan show equipment has an investment opportunity in europe.
00:06
The project cost is 10 .5 million and it is expected to produce cash flow of 1 .7 million and 2 .4 million and 3 .3 million for year 1, 2 and 3 respectively.
00:18
The current spot exchange rate is 1 .36.
00:21
The current risk -free rate in the united states is 2 .3 percent.
00:25
Compare that europe of 1 .8 percent.
00:28
The appropriate discount rate for the project estimated is 13 percent.
00:32
The us cost of capital for the company.
00:35
In addition, the subsidiary cost sold at the end of three years is estimated.
00:40
What is the npv of a project? what is the irr of a project? should lacan show invest in the project? so this is our question.
00:47
Let us do the solution for this.
00:50
First, we need to calculate the present value of a cash flow.
00:53
The sales of a subsidiary at the end of year 3, the pv of cash flow will be pv1 is equal to 1 .7 million dollars divided by 1 plus 0 .018.
01:10
So that is 1 .67 million dollars.
01:14
For pv2, it is million dollars.
01:19
For pv2, it is 2 .4 million dollars divided by 1 plus 0 .018 to the power 2, which is 1 .7 million dollars.
01:27
For pv3, it is 2 .34 million dollars...