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Gorbochevsky Equipment has an investment opportunity in Europe. The project costs EUR 14 million and is expected to produce cash flows of EUR 2.3...

Gorbochevsky Equipment has an investment opportunity in Europe. The project costs EUR 14 million and is expected to produce cash flows of EUR 2.3 million in Year 1, EUR 2.9 million in Year 2, and EUR 3.8 million in Year 3. The current spot exchange rate is $1.38/EUR ; the current risk-free rate in Canada is 3.2 percent, compared to that in Europe of 2.3 percent. The appropriate discount rate for the project is estimated to be 11 percent, the Canadian cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated EUR 9.3 million.

   What is the NPV of the project?

Top Answer

NPV: Net present value, abbreviated as... View the full answer

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Risk _ Net cash PV @
adjusted Cash [low flow 11%
spot rate fi___-—
1
M
3 Pres ant Valle Net present value Hm?) 3199124. ‘34:

1.3.jpg

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risk factor in Risk factor in Spot exchange Risk adjusted
Canada Europe rate spot rate 1 2-30“_ 1392143752
2— 2-3fi”_ 1-m338335
3 3.2% Mismfififl Year

1 comment
  • its a wrong answer
    • dajeonglee91
    • Jun 08, 2018 at 2:07pm

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