An American MNC is considering a project in Canada that has initial costs of $25 million in U.S. dollars. Its risk-adjusted discount rate for this project is 10%. The company anticipates that the cash flows in Canadian dollars will be $10 million per year for three years and then the salvage value at the end of the three years will be $5 million Canadian dollars. Future markets indicate that the Canadian dollar will depreciate over the three years, and the future exchanges rates at $.92 in one year, $.90 in two years and $.88 in three years.

Suppose instead that expectations about the Canadian dollar have changed and the new expectation is for less depreciation of the Canadian dollar relative to the U.S. dollar over the life of the project. Based on this new information, which of the following is a correct statement?

1. The NPV of this project will decline if the depreciation of Canadian dollar is less.

2. The discounted payback period will be longer if the depreciation of Canadian dollar is less.

3. The internal rate of return (IRR) will be greater if the depreciation of Canadian dollar is less.