Question

Problem 2 (10 points) A specialist dermatology and cosmetic surgery chain is considering opening a clinic in Germany that requires an investment of $250,000 today and will produce a cash flow of 208,650 euros in one year with no risk. Suppose the risk-free rate of interest in Germany is 7% and the current competitive exchange rate is 0.78 euros to 1 dollar. What is the NPV of this project? Would you advise them to take the project?

(1) NPV = 0; No

(2) NPV=$2,358; No

(3) NPV=$2,358; Yes

(4) NPV=$13,650; Yes

Explain your answer.

Answer 1

- X v fix =208650/0.78 HJ K n= 1 = 1 2 3 Factor Present value 0.9346 $ 250,000 Amuont 5 Operating cash flows $ 267,500 6 Less: 7 Initial investment 8 250,000 9 Net present value 10 11 Correct option is (1) NPV = 0; No

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