Final answer:
To calculate the NPV of euro cash flows from the project, you need to discount each cash flow using the appropriate discount rate. If the company hedges against exchange rate changes, the dollar cash flows will remain the same.
Step-by-step explanation:
To calculate the NPV of the euro cash flows from the project, you need to discount each cash flow using the appropriate discount rate. The NPV formula is:
NPV = CF0 + CF1/(1+r) + CF2/(1+r)^2 + ... + CFn/(1+r)^n
Where CF0, CF1, CF2, ..., CFn are the cash flows at each period, r is the discount rate, and n is the number of periods. To calculate the NPV in dollars, you need to convert the euro cash flows using the exchange rate between the euro and the dollar.
If the company hedges against exchange rate changes, the dollar cash flows from the project will remain the same regardless of the exchange rate fluctuations. The company hedges by entering into financial contracts, such as forward contracts or options, to lock in a specific exchange rate for future cash flows.