A U.S. firm is considering purchasing a subsidiary in Great Britain. The subsidiary will cost 16 million and will generate cash inflows of 7.6 million per year at the end of each of the next three years. After that, the company will be worthless. The current exchange rate is 0.83 British pounds per $1.00. The U.S. inflation rate is expected to be 4% over this period. The current risk- free rate of interest in the U.S. is 5% and the risk-free rate in Great Britain is 8%. 39. What is the cost of the project in U.S. dollars? A) $13.28 million B) $14.63 million C) $19.28 million D) $21.53 million E) $23.03 million 40. If interest rate parity holds, what is the 1-year forward rate for exchanging pounds for dollars? A) 0.830 B) 0.854 C) 0.863 D) 0.881 E) 0.907 A U.S. firm is considering purchasing a subsidiary in Great Britain. The subsidiary will cost 16 million and will generate cash inflows of 7.6 million per year at the end of each of the next three years. After that, the company will be worthless. The current exchange rate is 0.83 British pounds per $1.00. The U.S. inflation rate is expected to be 4% over this period. The current risk- free rate of interest in the U.S. is 5% and the risk-free rate in Great Britain is 8%. 39. What is the cost of the project in U.S. dollars? A) $13.28 million B) $14.63 million C) $19.28 million D) $21.53 million E) $23.03 million 40. If interest rate parity holds, what is the 1-year forward rate for exchanging pounds for dollars? A) 0.830 B) 0.854 C) 0.863 D) 0.881 E) 0.907