What is the break-even salvage value in dollars

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Petrus Company has a unique opportunity to invest in a two-year project in Australia. The project is expected to generate 5,125,000 Australian dollars (A$) in the first year and 5,242,000 Australian dollars in the second. At the end of the second year the salvage value is expected to be 594,000 Australian dollars. Petrus would have to invest $6,082,000 in the project today. Petrus has determined that the cost of capital for similar projects is 14%. (a) What is the net present value of this project if the spot rate of the Australian dollar for the two years is forecast to be $0.7048 and $0.7189, respectively? (b) Should the project be undertaken (you have to explain why or why not)? (c) What is the break-even salvage value in US dollars? Note: Round your final answer for parts (a) and (c) to the nearest cent.

Reference no: EM13917398

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