Question
A U.S. company is assessing whether to invest in a project in Morocco. The project requires an initial investment of 10 million Moroccan dirham (MAD)
A U.S. company is assessing whether to invest in a project in Morocco. The project requires an initial investment of 10 million Moroccan dirham (MAD) but will return cash flows of seven million MAD in year one and five million MAD in year 2. The risk-adjusted cost of capital for a similar U.S. project is 10% and the current spot exchange rate is MAD9 per $1. If U.S. government bond rates are 1% for one-year and 2% for 2 years while Moroccan government bond rates are 2% for 1-year and 3% for 2-years, what is the NPV of the project and is the project worth investing in?
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