Calculate the sterling net present value of the project

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Reference no: EM132763806

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 (EA 000) 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:

Problem 1: Calculate the £ Sterling net present value of the project by discounting nominal annual cash flows in £ Sterling.

Reference no: EM132763806

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