Question

# Lakonishok Equipment has an investment opportunity in Europe. The project costs €10.5 million and is expected...

 Lakonishok Equipment has an investment opportunity in Europe. The project costs €10.5 million and is expected to produce cash flows of €1.7 million in Year 1, €2.4 million in Year 2, and €3.3 million in Year 3. The current spot exchange rate is €.94/\$ and the current risk-free rate in the United States is 2.3 percent, compared to that in Europe of 1.8 percent. The appropriate discount rate for the project is estimated to be 13 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 €7.9 million.
 What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not in millions, rounded to 2 decimal places, e.g., 1,234,567.89)

 Year Cash flow [email protected]% Present Value Cash Inflow : 1 {\$1,700,000*\$0.94 *(1.023/1.080 }= \$1,513,661.11 0.885 \$1,339,590.08 {\$1,513,661.11*0.885} 2 {\$2,400,000*\$0.94 *(1.023/1.018)^2 }= \$2,278,215.52 0.783 \$1,783,842.75 {\$2,278,215.52*0.783} 3 {(\$3,300,000+\$7,900,000)*\$0.94 *(1.023/1.018)^3 }= \$10,683,890.87 0.693 \$7,403,936.37 {\$10,683,890.87*0.693} Present Value of Cash Inflows \$ 10,527,369.20 Less: Present Value of Cash Out Flows flows 1 (\$9,870,000)   {\$9,870,000*1.000} (\$10,500,000*\$0.94)= \$9,870,000 Net Present Value \$ 657,369.20

#### Earn Coins

Coins can be redeemed for fabulous gifts.

##### Need Online Homework Help?

Most questions answered within 1 hours.

##### Active Questions
• Identify ONE accounting policy that could lead to financial misstatements (deliberate or unintentional), or opportunities for...
• Pronghorn Corporation has temporary differences at December 31, 2017, that result in the following deferred taxes....
• Exercise 12-5 Volume Trade-Off Decisions [LO12-5] Outdoor Luggage, Inc., makes high-end hard-sided luggage for sports equipment....
• Consider the 0.5 mol sublimation of solid A described below: A (solid, 1 bar, 750 K)...
• Use your social media app. 1- Ask at least 30 people about the number of pets...
• Uncollectible Accounts, Using Direct Write-Off Method Illustrate the effects on the accounts and financial statements of...
• Please show all calculations and formulas. If using Excel (or tables), please show data, formulas, etc....
• on feburary 1st Spencer took out a loan for \$3,700 at 3.5% annual interest. the loan...
• J. Renner Inc. has been offered a four-year contract to supply parts for a local business....
• -The full chemical composition of piper nigrum (black pepper) with link to source -Why do we...
• 1.The sales for October, November, and December are (6 * 1000, \$ 33,000, and \$54,000, respectively....