Current exchange rate

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Reference no: EM131318158

DCR Inc. is considering a 3-year project in U.K. The project's expected pound cash flows consist of an initial investment of 1,000 with cash flows of 2,000 in year 1, 1,000 in year 2, and 3,000 in year 3. Again, these cash flows are in the pound. The cost of capital for the project is 10%.

The current exchange rate: 1.5 dollars = 1 pound.

Risk-free interest rates in the U.S. and the U.K. are:

U.S.

1-year: 4%

2-year: 5%

3-year: 6%

U.K.

1-year: 3%

2-year: 5%

3-year: 7%

What is the NPV (in the U.S. dollar) of the project?

Note: During the calculations, the rounding of the numbers may impact the final answer. So select the closest answer.

Select one:

a. $5567.9

b. $5,780.5

c. $5,389.3

d. $5900.6

e. $5,129.6

Reference no: EM131318158

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