International Capital Budgeting. An American firm is evaluating an investment in Indonesia.

The project costs 500 billion Indonesian rupiah and it is expected to produce an income of 250 billion Indonesian rupiah a year in real terms for each of the next 3 years. The expected inflation rate in Indonesia is 12 percent a year and the firm estimates that an appropriate discount rate for the project would be about 8 percent above the risk-free rate of interest. Calculate the net present value of the project in U.S. dollars. Exchange rates are given in Table 6.5. The interest rate is about 15.3 percent in Indonesia and 6 percent in the United States.