Question
Griffith Electronics is an Australian smartphone maker. It also sells its product in Canada. To boost its sales in Canada, the company is planning to
Griffith Electronics is an Australian smartphone maker. It also sells its product in Canada. To boost its sales in Canada, the company is planning to run a one-year advertisement campaign there. This advertising project requires an initial outlay of 100 million CAD, and the payment needs to be made now. The current spot exchange rate is 0.8 AUD per CAD. The campaign is expected to increase its earnings in Canada for 110 million CAD this year and the company is remitting gains in Canada at the end of the year.
The company expects the spot exchange rate at the end of Year 1 to be 0.7 AUD per CAD, and the company's required rate of return is 6.5%. Based on what you have learnt in International Finance, would this project increase the value of Griffith Electronics (Hint: NPV)? Provide all the workings and justify your answer (use up to 3 decimal places).
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