You are considering investing in a movie-making venture i.e. you are considering becoming a producer. The project you are considering is a Bollywood movie whose costs today in INR are 250 million. The current spot exchange rate is 80 INR/USD. The movie is expected to take one year to produce and is expected to generate cash inflow 400 million INR on a blockbuster weekend one year from now. The USD discount rate for this project is 50%. Using this limited set of information and your estimate for the expected spot rate 1 year from now, you calculate that the project has a zero NPV today. What is the INR/USD expected spot rate 1 year from now that you used in your calculation? 75.33128.085.3380.33 QUESTION 9 You are considering investing in a movie-making venture i.e. you are considering becoming a producer. The project you are considering is a Bollywood movie whose costs today in INR are 250 million. The current spot exchange rate is 80 INR/USD. The movie is expected to take one year to produce and is expected to generate cash inflow 400 million INR on a blockbuster weekend one year from now. The USD discount rate for this project is 50%. You estimate that the INR/USD expected spot rate 1 year from now is likely to be 87.0 INR/USD. You arrive at a negative NPV. Yet you are persuaded to accept the project because your financial advisor tells you to use the ANPV method which leads to a positive ANPV. Which aspect of the ANPV might have caused this evaluation? Adjustment in the Spot exchange rate to reflect CIRP instead of Relative PPP Adjustment in the Spot exchange rate to reflect Relative PPP instead of CIRP Real Options pertaining to opportunities for sequels for this movie have a significant PV ANPV adds value through Siegels' Paradox which says that one should always use direct quotation USD/INR instead of indirect INR/USD. QUESTION 10 You are considering investing in a movie-making venture i.e. you are considering becoming a producer. The project you are considering is a Bollywood movie whose costs today in INR are 250 million. The current spot exchange rate is 80 INR/USD. The movie is expected to take one year to produce and is expected to generate cash inflow 400 million INR on a blockbuster weekend one year from now. The USD discount rate for this project is 50%. The expected inflation rate in the US is about 5% while the expected inflation rate in India is expected to be 10%. If relative PPP holds, is this a good project and what is the NPV in USD? No,$86,258No,$246,398Yes,$367,063Yes,$56,818