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A US Multinational is considering a European investment opportunity. The size and timing of the after-tax cash flows are as follows: Initial investment required is 6800. The cash flows of the following 3 years are (300, E300 and E200. The inflation rate in the euro zone is 2%, and the inflation rate in dollars is 5%. The rate of return required by this US firm is 12%. The current exchange rate is 1.25$/E.
Required:
Please describe the two methods which can be used to calculate the net present value (NPV) to determine if this is a good investment for the US firm.
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