8-37. A U.S. company is considering a high-technology project in a foreign country. The estimated economic results for the project (after taxes), in the foreign currency

(T-marks), is shown in the following table for the seven-year analysis period being used. The company requires an 18% rate of return in U.S. dollars (after taxes)

on any investments in this foreign country. (8.6)

End of Year Cash Flow (T-marks after Taxes)

0 −3,600,000 1 450,000 2 1,500,000 3 1,500,000 4 1,500,000 5 1,500,000 6 1,500,000 7 1,500,000

a. Should the project be approved, based on a PW analysis in U.S. dollars, if the devaluation of the T-mark, relative to the U.S. dollar, is estimated to average 12% per year and the present exchange rate is 20 T-marks per dollar?

b. What is the IRR of the project in T-marks?

c. Based on your answer to (b), what is the IRR in U.S.

dollars?