Cresskill, Inc., has an investment opportunity in Europe. The project costs €10 million and is expected to produce cash flows of €1.4 million in Year 1, €1.8 million in Year 2, and €2.9 million in Year 3. The current spot exchange rate is $1.29/€; and the current risk- free rate in the United States is 1.4 percent, compared to that in Europe of 2.2 percent. The appropriate discount rate for the project is estimated to be 14 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €8.4 million. Use the exact form of interest rate parity in calculating the expected spot rates. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to two decimal places, e.g.. 1,234,567.89)

Cresskill, Inc., has an investment opportunity in Europe. The project costs €10 million and is expected to produce cash flows of €1.4 million in Year 1, €1.8 million in Year 2, and €2.9 million in Year 3. The current spot exchange rate is $1.29/€; and the current risk- free rate in the United States is 1.4 percent, compared to that in Europe of 2.2 percent. The appropriate discount rate for the project is estimated to be 14 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €8.4 million. Use the exact form of interest rate parity in calculating the expected spot rates. What is the NPV of the project in U.S. dollars? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to two decimal places, e.g.. 1,234,567.89)

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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