NPV and Financing Louisville Co. is a U.S. firm considering a project in Austria that will require an initial cash outlay of $7 million. Louisville will accept the project only if it can satisfy its required rate of return of 18 percent. The project would definitely generate 2 million euros in one year from sales to a large corporate customer in Austria. In addition, the company expects to receive 4 million euros in one year from sales to other customers in Austria. Louisville’s best guess is that the euro’s spot rate will be $1.26 in one year. Today, the spot rate of the euro is $1.40 and the one-year forward rate of the euro is $1.34. If Louisville accepts the project, it would hedge all the receivables resulting from sales to the large corporate customer but none of the expected receivables due to expected sales to other customers.
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