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Can you please work this out for me?
A UK company is making CNN investment of GBP 1 million in the US.
It is expecting the following cash flows.
$400000 with a probability of 40% or $700000 with a probability of 60%, for x h of the next 3 years remitted to the UK at the of every year.
Current 1GBP is worth USD1. 30.
Expected inflation for the next 4 years are 2% in the UK and 4% in the US.
What is the NPV if you apply the PPPT.Not sure what CNN is.
Expected value of inflows = 4 x 0.4 + 7 x 0.6 = $5.8m. I assume from the wording that this is the expected value to be received and it is not subject to inflation, though the question should be cleared with respect to that.
If current exchange rate is 1.3 $/£, then the future rates are
Yr 1 1.3 x 1.04/1.02 = 1.3255
Yr 2 1.3255 x 1.04/1.02 = 1.3515
Yr 3 1.3515 x 1.04/1.02 = 1.378Use these to convert the $ receipts to £ then apply the discount rate (which you have not supplied)
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