Question
Julies' Co is considering expanding its operations in a foreign country. The cost of the project would be 16 million units of foreign currency. The
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Julies' Co is considering expanding its operations in a foreign country. The cost of the project would be 16 million units of foreign currency. The cash flows related to the project would be 9.2 million units of foreign currency per year for the next 2 years. The dollar required return is 9 percent per year and the current exchange rate is 1 dollar per 1.06 units of the foreign currency. The interest rate in the U.S. is 5 percent. The interest rate in foreign countries is 2 percent. Use the approximate form of interest rate parity in calculating the expected spot rates. What is the NPV in dollars?
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