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The next 3 questions are based on the following information. You work for a firm whose home currency is the British Pound (GBP) and that
The next 3 questions are based on the following information. You work for a firm whose home currency is the British Pound (GBP) and that is considering a foreign investment. The investment yields expected after-tax Russian Ruble (RUB) cash flows (in millions) as follows: Year 0 Year 1 Year 2 Year 3 -RUB1,170 RUB521 RUB521 RUB521 The expected rates of inflation in each country are constant per year: 4.10% in Russia, and 8.90% in the UK. From the projects perspective the required return is 5.38%, while from the parents perspective, the required rate of return is 10.62%. The spot exchange rate is GBP0.008412/RUB. Assume that covered interest rate parity holds and that
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