An Australian company, GHI Ltd, is examining a potential investment in England. The project is expected to cost GBP 100 million and have a salvage value of GBP 30 million at the end of its 4-year life. Revenues generated from the project are based on estimated annual sales of 15 million units at a price of £12 each. Variable costs are expected to be £4 per unit and fixed costs are expected to be GBP 12 million per year. The current exchange rate of AUD = 0.58 GBP and the AUD is expected to depreciate at 5% pa over the life of the project. The required return is 12% in AUD. Calculate the NPV of the project and determine whether it should be undertaken.

An Australian company, GHI Ltd, is examining a potential investment in England. The project is expected to cost GBP 100 million and have a salvage value of GBP 30 million at the end of its 4-year life. Revenues generated from the project are based on estimated annual sales of 15 million units at a price of £12 each. Variable costs are expected to be £4 per unit and fixed costs are expected to be GBP 12 million per year. The current exchange rate of AUD = 0.58 GBP and the AUD is expected to depreciate at 5% pa over the life of the project. The required return is 12% in AUD. Calculate the NPV of the project and determine whether it should be undertaken.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 14P

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