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Brunello, an Italian firm, is considering a project in Pakistan. The following table lists Pakistani rupee...

Brunello, an Italian firm, is considering a project in Pakistan. The following table lists Pakistani rupee (PKR) cash flows. The PKR is currently trading at PKREUR equals 0.0091. Assume that future spot rates are equal to the current spot rate. The WACC of the firm is 10 percent.
Year     Cash Flows (PKR million)
0                      -13
1– 3                   4
4                         6
If the year 4 cash flow contains a terminal/ salvage value of assets of PKR 3 million and if this value is subject to a 25 percent probability of expropriation, what is the project NPV?

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Answer #1

We see that the project's NPV is given as equal to=(-13+4/1.1+4/1.1^2+4/11.1^3+3/1.1^4+3*75%/1.1^4)*0.0091
=-0.022469 million EUR

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