You are analyzing a project with an initial cost of £48,000. The project is expected to return £11,000 the first year, £36,000

You are analyzing a project with an initial cost of £48,000. The project is expected to return £11,000 the first year, £36,000 the second year and £38,000 the third and final year. There is no salvage value. The current spot rate is £0.6211. The nominal return relevant to the project is 12 percent in the U.S. The nominal risk-free rate in the U.S. is 4 percent while it is 5 percent in the U.K. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?    A.  $23,611 B.  $25,938 C.  $26,930 D.  $29,639 E.  $30,796 E(S1) = 0.6211 × [1 + (0.05 - 0.04)]1 = 0.627311 E(S2) = 0.6211 × [1 + (0.05 - 0.04)]2 = 0.63358411 E(S3) = 0.6211 × [1 + (0.05 - 0.04)]3 = 0.639919951 CF0 = -£48,000 × ($1/£0.6211) = -$77,282.24 CF1 = £11,000 × ($1/£0.627311) = $17,535.16 CF2 = £36,000 × ($1/£0.63358411) = $56,819.61 CF3 = £38,000 × ($1/£0.639919951) = $59,382.43 NPV = -$77,282.24 + ($17,535.16/1.121) + ($56,819.61/1.122) + ($59,382.43/1.123) = -$77,282.24 + $15,656.39 + $45,296.25 + $42,267.24 = $25,938

83.

You are analyzing a project with an initial cost of £130,000. The project is expected to return £20,000 the first year, £50,000 the second year and £90,000 the third and final year. There is no salvage value. The current spot rate is £0.6211. The nominal risk-free return is 5.5 percent in the U.K. and 6 percent in the U.S. The return relevant to the project is 14 percent in the U.S. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?    A.  -$19,062 B.  -$5,409 C.  $5,505 D.  $9,730 E.  $18,947 E(S1) = 0.6211 × [1 + (0.055 - 0.06)]1 = 0.6179945 E(S2) = 0.6211 × [1 + (0.055 - 0.06)]2 = 0.614904528 E(S3) = 0.6211 × [1 + (0.055 - 0.06)]3 = 0.611830005 CF0 = -£130,000 × ($1/£0.6211) = -$209,306.07 CF1 = £20,000 × ($1/£0.6179945) = $32,362.75 CF2 = £50,000 × ($1/£0.614904528) = $81,313.44 CF3 = £90,000 × ($1/£0.611830005) = $147,099.68 NPV = -$209,306.07 + ($32,362.75/1.141) + ($81,313.44/1.142) + ($147,099.68/1.143) = -$209,306.07 + $28,388.38 + $62,568.05 + $99,288.10 = -$19,062

84.	Based on the information below, what is the cross-rate for Australian dollars in terms of Swiss francs?        A.  0.5607 B.  0.7219 C.  0.8897 D.  1.1437 E.  1.2834 Cross-rate = 0.7125/0.8008 = 0.8897