Question

Lakonishok Equipment has an investment opportunity in Europe. The project costs €14 million and is expected to produce cash flows of €3.3 million in year 1, €3.7 million in year 2, and €3.9 million in year 3. The current spot exchange rate is $1.25/€; the current risk-free rate in the United States is 5.2 percent, compared to that in Europe of 4.3 percent. The appropriate discount rate for the project is estimated to be 9 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 €8.2 million. What is the NPV of the project? (Do not round your intermediate calculations.)

rev: 09_21_2012

$2,171,070.09

$2,351,992.60

$-4,852,619.94

$2,261,531.34

$1,460,555.14

Answer 1