Question

Lakonishok Equipment has an investment opportunity in Europe. The project costs €13 million and is expected...

Lakonishok Equipment has an investment opportunity in Europe. The project costs €13 million and is expected to produce cash flows of €2.1 million in Year 1, €3.1 million in Year 2, and €3.6 million in Year 3. The current spot exchange rate is $1.40 / €; and the current risk-free rate in the United States is 2.6 percent, compared to that in Europe of 2.2 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 €9.5 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 round your answer to 2 decimal places, e.g., 32.16. Enter your answer in dollars, not in millions, e.g., 1,234,567.)

NPV $

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Lakonishok Equipment has an investment opportunity in Europe. The project costs €14 million and is expected...
Lakonishok Equipment has an investment opportunity in Europe. The project costs €14 million and is expected to produce cash flows of €2.3 million in Year 1, €2.9 million in Year 2, and €3.8 million in Year 3. The current spot exchange rate is $1.38 / €; and the current risk-free rate in the United States is 3.2 percent, compared to that in Europe of 2.3 percent. The appropriate discount rate for the project is estimated to be 11 percent, the...
Lakonishok Equipment has an investment opportunity in Europe. The project costs €14 million and is expected...
Lakonishok Equipment has an investment opportunity in Europe. The project costs €14 million and is expected to produce cash flows of €2.3 million in Year 1, €2.9 million in Year 2, and €3.8 million in Year 3. The current spot exchange rate is $1.38 / €; and the current risk-free rate in the United States is 3.2 percent, compared to that in Europe of 2.3 percent. The appropriate discount rate for the project is estimated to be 11 percent, the...
Lakonishok Equipment has an investment opportunity in Europe. The project costs €10.5 million and is expected...
Lakonishok Equipment has an investment opportunity in Europe. The project costs €10.5 million and is expected to produce cash flows of €1.7 million in Year 1, €2.4 million in Year 2, and €3.3 million in Year 3. The current spot exchange rate is €.94/$ 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...
Capital Budgeting Lakonishok Equipment has an investment opportunity in Europe. The project costs 19 million Euro...
Capital Budgeting Lakonishok Equipment has an investment opportunity in Europe. The project costs 19 million Euro an is expected to produce cash of 3.6 million euro in year 1, 4.1 million Euro in year 2, and 5.1 million Euro in year 3. The current spot exchange rate is $1.19/Euro and the current risk-free rate in the United States is 3.1 percent, compared to that in Europe of 2.9 percent. The appropriate discount rate for the project is estimated to be...
Lakonishok Equipment has an investment opportunity in Europe. The project costs €15 million and is expected...
Lakonishok Equipment has an investment opportunity in Europe. The project costs €15 million and is expected to produce cash flows of €1.7 million in year 1, €3.4 million in year 2, and €2.7 million in year 3. The current spot exchange rate is $1.15/€; the current risk-free rate in the United States is 4.9 percent, compared to that in Europe of 4.8 percent. The appropriate discount rate for the project is estimated to be 17 percent, the U.S. cost of...
Lakonishok Equipment has an investment opportunity in Europe. The project costs €14 million and is expected...
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...
You are analyzing a project with an initial cost of £50,000. The project is expected to...
You are analyzing a project with an initial cost of £50,000. The project is expected to return £12,000 the first year, £36,000 the second year, and £40,000 the third and final year. There is no salvage value. Assume the current spot rate is £.6346. The nominal return relevant to the project is 12 percent in the U.S. The nominal risk-free rate in the U.S. is 3.4 percent while it is 4.1 percent in the U.K. Assume that uncovered interest rate...
You are analyzing a project with an initial cost of £130,000. The project is expected to...
You are analyzing a project with an initial cost of £130,000. The project is expected to return £20,000 the first year, £50,000 the second year, and £90,000 the third and final year. There is no salvage value. The current spot rate is £.8211. The nominal risk-free return is 5.0 percent in the U.K. and 6.5 percent in the U.S. The return relevant to the project is 15 percent in the U.S. Assume that uncovered interest rate parity exists. What is...
Dorman Industries has a new project available that requires an initial investment of $6.5 million. The...
Dorman Industries has a new project available that requires an initial investment of $6.5 million. The project will provide unlevered cash flows of $875,000 per year for the next 20 years. The company will finance the project with a debt-to-value ratio of .4. The company’s bonds have a YTM of 5.9 percent. The companies with operations comparable to this project have unlevered betas of 1.35, 1.28, 1.50, and 1.45. The risk-free rate is 2.9 percent, and the market risk premium...
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.1 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,150,000 in annual sales, with costs of $1,078,327. Required: If the tax rate is 35 percent, what is the OCF for this project? (Do not include the dollar sign ($). Enter your answer in...