Calculate the Sterling net present value of the project

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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.

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.

(d) A constant annual cash inflow (an annuity) of £5,000 received for the foreseeable future.

Reference no: EM132746937

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