= = x T Normal Subtitle = . A Title x A . A Font Paragraph Styles 3. Use of Inflation Data in NPV. A project in Hong Kong costs HKD 100,000 and produces cash flows of HKD 40,000 per year for 4 years. Gruner, a Swiss firm, is interested in adopting this project. If this had been a domestic project, the discount rate would have been 14%. Forecasts of inflation rates over the next 4 years indicate inflation of 2.5% in Switzerland and 5% in Hong Kong Spot CHFHKD 6.2. a) What is the appropriate discount rate for HKD cash flows? Using this discount rate calculate project NPV is HKD. b) Making appropriate assumptions and using data given in the problem forecast future values of CHFHKD. c) Estimate CHF cash flows and calculate project NPV in CHF. Are HKD and CHF project NPV different? Explain. Use the attached Excel spreadsheet to answer this question. DE FR G H Use of Inflation Data in NPV (Gruner): 012 CF (HKD) -100,000 40,000 40,000 40,000 40,000 a) What is the discount rate for HKD and NPV in HKD? Disc rate (CHF) Inflation (HKD) Inflation (CHF) Disc rate (HKD) NPV (HKD) at 16.78% b) Forecast future values of CHFHKD Spot CHFHKD TOI2 CHFHKD c) Forecast CHF cash flows and calculate NPV in CHF 01 CF (HKD) CHFHKD CF (CHF) NPV at 14% CHF * Spot Rate = NPV in HKD HKD Ch8