7. International capital budgeting

One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies.

Consider this case:

LeBron Development Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project:

	The project requires an investment of AU$987,000 today and is expected to generate cash flows of AU$1,300,000 at the end of each of the next two years.
	The current exchange rate of the U.S. dollar against the Australian dollar is $0.7755 per Australian dollar (AU$).
	The one-year forward exchange rate is $0.8022 / AU$, and the two-year forward exchange rate is $0.8143 / AU$.
	The firms weighted average cost of capital (WACC) is 9.5%, and the project is of average risk.

What is the dollar-denominated net present value (NPV) of this project?

(A) $909,364

(B) $1,176,824

(C) $1,069,840

(D) $1,123,332