Question 5: Surfboards USA wants to expand its operations to Australia. The current indirect exchange rate is 1.45 for US and Australia dollars. The anticipated inflation rate is 3% in the United States, but only 1.5% in Australia. The discount rate in the United States for the expansion project is 14%. If the company has forecast the following Australian dollars for the expansion project, should Surfboards USA expand to Australia based on domestic NPV approach?

Initial investment: A$40,000,000 (Note that: A$ means Australian dollars) Year 1: cash flow: A$5,000,000

Year 2: cash flow: A$9,000,000

Year 3: cash flow: A$16,000,000

Year 4: cash flow: A$20,000,000 Year 5: cash flow: A$8,000,000 Year 6: cash flow: A$3,000,000