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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Changing prices

World Electronics Inc. invested $16,000,000 (o build a plant in a foreign country. The labor
and materials used in production are purchased locally. The plant expansion was estimatedto produce an internal rate of return of 20% in U.S. dollar terms. Due to a currency crisis, flie currency exchange rate between the local currency and the U.S. dollar doubled fromtwo local units per U.S. dollar to four local units per U.S. dollar.
Asssume that the plant produced and sold product in the local economy. Explain what impact thi5 change in the currency exchange rate would have on the projects internal rateof return.

To determine

Concept Introduction:

IRR:

Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

To Indicate:

The Impact of change in foreign current rates on the IRR

Explanation

Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven...

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