Question: Petrus Company has unique opportunity to invest in a two-year project in Australia. The project is expected to generate 1,450,000 Australian dollars (AS) in the first year and Australian dollars in the second. At the end of the second year the salvage value is expected to be 119,000 Australian dollars. Petrus would have to invest $1,890,000 in the project today. Petrus has determined that the cost of capital for similar projects is 15%.
(a) What is the net present value of s project if the spot rate of the Australian dollar for the two years is forecast to be the project be undertaken (you have to explain why or why not?
(b) What is the break-even salvage value US dollars? Note: Round your final answer for parts (a) and(b) to the nearest cent. Hint Review Lecture 19, Slides 21-25 and Lecture 20, Slides 13-18. Treat the second year in this problem in similar way to the fourth year in the example in Lecture 20 because it is the final year of the project.