A Project Has an Initial Cost of £1

A project has an initial cost of £1.2 million and expected cash inflows of £400,000,£500,000,and £600,000 for Years 1 to 3,respectively.Assume the current spot rate is £.73 and the nominal risk-free returns are 4 percent in the U.K.and 3 percent in the U.S.If uncovered interest rate parity exists,what is the net present value of this project in U.S.dollars using the home currency approach? Assume the project's U.S.discount rate is 12 percent.

A) −$56,359
B) −$104,040
C) −$71,067
D) $26,422
E) $92,009

Correct Answer:

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