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A UK base company is considering an investment of GPB 1,000,000 in a project in the USA. Its an anticipated that
the following cash flows will arise this project
The cash flows will be either USD 400,000 with a probability of 40% or USD 700,000 with a probability of 60 % for
each of the next three years remitted to the UK at the end of each year
Currently GBP 1.00 is worth USD 1.30
The expected inflation rates in the two countries over the next four years are 2% in the UK and 4% in the US
Applying the purchasesing power party theory, which of the following represents the expected net present value
of the project in GBP (to the nearest whole pound)?
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