Answered: End of Year Cash Flow (T-marks after…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A U.S. company is considering a high-technology project in a foreign country. The estimated economic results for the project (after taxes), in the foreign currency (T-marks), is shown in the following table for the seven-year analysis period being used. The company requires an 18% rate of return in U.S. dollars (after taxes) on any investments in this foreign country. a. Should the project be approved, based on a PW analysis in U.S. dollars, if the devaluation of the T-mark, relative to the U.S. dollar, is estimated to average 12% per year and the present exchange rate is 20 T-marks per dollar? b. What is the IRR of the project in T-marks? c. Based on your answer to (b), what is the IRR in U.S. dollars?

End of Year Cash Flow (T-marks after Taxes)
-3,600,000
1
450,000
1,500,000
1,500,000
1,500,000
1,500,000
1,500,000
1,500,000
3
4
5
6
7

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