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69) Consider the following international investment opportunity. It involves a gold mine that can
be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up.
The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 6 percent and in the
euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of
this risk is 8 percent.
What is the euro-denominated IRR of this project?
70) Consider the following international investment opportunity. It involves a gold mine that can
be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up.
The current exchange rate is $1.55 = €1.00. The inflation rate in the U.S. is 6 percent and in the
euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of
this risk is 8 percent.
Find the euro-zone cost of capital to compute is the dollar-denominated NPV of this project.
71) Consider the following international investment opportunity. It involves a gold mine that can
be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up.
The current exchange rate is $1.55 = €1.00. The inflation rate in the U.S. is 6 percent and in the
euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of
this risk is 8 percent.
Find the dollar cash flows to compute the dollar-denominated NPV of this project.
72) Consider the following international investment opportunity. It involves a gold mine that can
be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up.
The current exchange rate is $1.55 = €1.00. The inflation rate in the U.S. is 6 percent and in the
euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of
this risk is 8 percent.
What is the dollar-denominated IRR of this project?
73) Consider the following international investment opportunity. It involves a gold mine that can
be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up.
The current exchange rate is $1.55 = €1.00. The inflation rate in the U.S. is 6 percent and in the
euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of
this risk is 8 percent.
What is the euro-denominated IRR of this project?
74) Consider the following international investment opportunity:
The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 3 percent and in the
euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of
this risk is 8 percent.
Find the euro-zone cost of capital to compute is the dollar-denominated NPV of this project.
75) Consider the following international investment opportunity:
The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 3 percent and in the
euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of
this risk is 8 percent.
Find the dollar cash flows to compute the dollar-denominated NPV of this project.
76) Consider the following international investment opportunity:
The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 3 percent and in the
euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of
this risk is 8 percent.
What is the dollar-denominated IRR of this project?
77) Consider the following international investment opportunity:
The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 3 percent and in the
euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of
this risk is 8 percent.
What is the euro-denominated IRR of this project?
78) A French firm is considering a one-year investment in the United Kingdom with a
pound-denominated rate of return of i£ = 15%. The firm's local cost of capital is i€ = 10%. The
project costs £1,000 and will return £1,150 at the end of one year. The current exchange rate is
€2.00 = £1.00.
Suppose that the bank of England is considering either tightening or loosening its monetary policy.
It is widely believed that in one year there are only two possibilities:
S1 (€/£) = €2.20 per £
S1 (€/£) = €1.80 per £
Following revaluation, the exchange rate is expected to remain steady for at least another year.
Find the ex post IRR in euro for the French firm if they undertake the project today and then the
exchange rate falls to S1(€/£) = €1.80 per £.
79) A French firm is considering a one-year investment in the United Kingdom with a
pound-denominated rate of return of i£ = 15%. The firm's local cost of capital is i€ = 10%. The
project costs £1,000 and will return £1,150 at the end of one year. The current exchange rate is
€2.00 = £1.00.
Suppose that the bank of England is considering either tightening or loosening its monetary policy.
It is widely believed that in one year there are only two possibilities:
S1 (€/£) = €2.20 per £
S1 (€/£) = €1.80 per £
Following revaluation, the exchange rate is expected to remain steady for at least another year.
Find th e ex post IRR in euro for the French firm if they undertake the project today and then the
exchange rate rises to S1(€/£) = €2.20 per £.
80) A French firm is considering a one-year investment in the United Kingdom with a
pound-denominated rate of return of i£ = 15%. The firm's local cost of capital is i€ = 10%. The
project costs £1,000 and will return £1,150 at the end of one year. The current exchange rate is
€2.00 = £1.00.
Suppose that the bank of England is considering either tightening or loosening its monetary policy.
It is widely believed that in one year there are only two possibilities:
S1 (€/£) = €2.20 per £
S1 (€/£) = €1.80 per £
Following revaluation, the exchange rate is expected to remain steady for at least another year.
Find the IRR in euro for the French firm if they wait one year to undertake the project after the
exchange rate rises to S1(€/£) = €2.20 per £.
81) A French firm is considering a one-year investment in the United Kingdom with a
pound-denominated rate of return of i£ = 15%. The firm's local cost of capital is i€ = 10%. The
project costs £1,000 and will return £1,150 at the end of one year. The current exchange rate is
€2.00 = £1.00.
Suppose that the bank of England is considering either tightening or loosening its monetary policy.
It is widely believed that in one year there are only two possibilities:
S1 (€/£) = €2.20 per £
S1 (€/£) = €1.80 per £
Following revaluation, the exchange rate is expected to remain steady for at least another year.
Find the NPV in euro for the French firm if they wait one year to undertake the project after the
exchange rate rises to S1(€/£) = €2.20 per £.
82) A French firm is considering a one-year investment in the United Kingdom with a
pound-denominated rate of return of i£ = 15%. The firm's local cost of capital is i€ = 10%. The
project costs £1,000 and will return £1,150 at the end of one year. The current exchange rate is
€2.00 = £1.00.
Suppose that the bank of England is considering either tightening or loosening its monetary policy.
It is widely believed that in one year there are only two possibilities:
S1 (€/£) = €2.20 per £
S1 (€/£) = €1.80 per £
Following revaluation, the exchange rate is expected to remain steady for at least another year.
Find the IRR in euro for the French firm if they wait one year to undertake the project after the
exchange rate falls to S1(€/£) = €1.80 per £.
