Reference no: EM132746937
Questions -
Question 1 - A professional accountancy institute in the United Kingdom is evaluating an investment project overseas - in Eastasia, a politically stable country. The project will cost an initial 2.5 million Eastasian dollars (EA$) and it is expected to earn nominal post-tax cash flows as follows.
Year
|
1
|
2
|
3
|
4
|
Cash flow (EA000)
|
750
|
950
|
1,250
|
1,350
|
(a) The expected inflation rate in Eastasia is 3% a year, and 5% in the UK.
(b) The current spot rate is EA$ 2 per £1 Sterling.
(c) The company requires a sterling return from this project of 16%.
Required - Calculate the £ Sterling net present value of the project by discounting nominal annual cash flows in £ Sterling.
Question 2 - Calculate the present value of the following cash flows assuming a discount rate of 10%.
(a) A cash inflow of £5,000 in one year's time.
(b) A constant annual cash inflow (an annuity) of £5,000 received for the next five years.
(c) A constant cash inflow of £5,000 received in three years' time and for the next four years (time 3-7).
(d) A constant annual cash inflow (an annuity) of £5,000 received for the foreseeable future.