A Project Has an Initial Cost of £80,000 and Is

A project has an initial cost of £80,000 and is expected to return £10,000 the first year,£40,000 the second year,and £50,000 the third and final year.Assume the current spot rate is £.75.Also assume the nominal risk-free return is 3 percent in the U.K.and 5 percent in the U.S.The return relevant to the project is 7.8 percent in the U.K.and 8.1 percent in the U.S.Assume uncovered interest rate parity exists.What is the net present value of this project in U.S.dollars using the home currency approach?

A) $9,787
B) $11,002
C) $10,312
D) $10,511
E) $9,514

Correct Answer:

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