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Hi John
I have a problem regarding the currency used in the suggested solution.
I read the following from the question:
4. “The net present value of the project should be based upon a 100% remittance of net cash flows to Dubai and should be calculated in dollars”
(a)(i) “Prepare a nominal dollar projection of the after tax cash flow for this project…….”I assumed that the above means that the entire projection should be in dollars. So i translated all figures to dollars. The solution however does most of the projection in pounds and only translates the final cashflow figures to Dollars.
My Question is: How could I have avoided this ? Which part of the question did I not read properly. I need to know this so I don’t repeat the same mistake in the Exam.
Thanks
For any question involving an investment in a different country, you should always first calculate the cash flows in the other countries currency, then you should determine what is remitted to the home country, then you should convert to the home countries currency.
You need to do it that way, partly because it saves a lot of time (!) but more importantly because there could be occasions when the cash flow for a year is not all remitted in that year.
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