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Compute the internal rate of return of the norwegian project

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Reference no: EM132954186

Bartley Corp., a U.S. company, is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $6 million. If the project is undertaken, the company would terminate the project after 4 years. Barley's cost of capital is 14 percent, and the project has the same risk as Bartley's existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK) and Bartley's forecasted exchange rates for the kroner. The current spot rate of the kroner is $.13.

                                                    Year 1                   Year 2                 Year 3                   Year 4
CF in kroner                        10,000,000        15,000,000         17,000,000           20,000,000
Forecasted exchange rate        $0.12               $0.15                  $0.14                    $0.13

Problem (1) Compute the internal rate of return of the Norwegian project?

Problem (2) Should the company go ahead with the project? Explain.

Reference no: EM132954186

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