The spot exchange rate is ¥125 = $1. The U.S. discount rate is 10%; inflation over the next three years is 3% per year in the U.S. and 2% per year in Japan.
Year 0 Year 1 Year 2 Year 3
–¥1,000,000 ¥500,000 ¥500,000 ¥500,000
NPV = $2,137.46
USE THIS INFORMATION TO ANSWER THE NEXT QUESTION
Consider a project of the Cornell Haul Moving Company, the timing and size of the incremental after-tax cash flows (for an all-equity firm) are shown below in millions:
0 1 2 3 4
–$1000 +$125 +$250 +$375 +$500
If the firm were financed entirely with equity, the required return would be 10%. What is the value of this project to an all-equity firm?
a) –$46.5
b) $46.5
c) -$56.5
d) $56.5