A Canadian project has an initial cost of Can$1.8 million and is expected to pro

Question

A Canadian project has an initial cost of Can$1.8 million and is expected to produce cash inflows of Can$710,000 a year for 3 years after which time it will be worthless. The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S. The applicable interest rate in Canada is 8 percent. The current spot rate is C$1 = $.88. What is the net present value of this project in Canadian dollars using the foreign currency approach? Select one: a. Can$33,974.02 b. Can$32,790.05 c. Can$29,738.86 d. Can$28,721.40 e. Can$30,751.18

Explanation / Answer

NPV = 29,738.86

8.00% Cash flows Year Discounted CF    (1,800,000.00) 0 -1800000.00          710,000.00 1 657407.41          710,000.00 2 608710.56          710,000.00 3 563620.89

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