Leftway Information Systems is considering a contract with the Ibernian government to supply consulting services over a five-year period. The following real Ibernian pound cash flows are expected: Cash Flows in Year 2010 Ibernian Pounds First cost |Net revenue 2014 to 2018 1 800 000 550 000 Further information is in the table below: Expected Ibermian inflation rate 10% Value of Ibernian pound in 2013 (S) 1.25 Expected annual rate of decline in the value of the İbernian pound 5% Expected inflation rate in Leftway's country 2.50% Lefeway's real MARR 15% a. What is the real Ibernian pound internal rate of return on this project? (Hint: Leftway's country can be ignored in answering this question.) b. What is the current pound internal rate of return? (Hint: Leftway's country can be ignored in answering this question.) c. Use the internal rate of return in dollars to decide if Leftway should accept the proposed contract.

Leftway Information Systems is considering a contract with the Ibernian government to supply consulting services over a five-year period. The following real Ibernian pound cash flows are expected: Cash Flows in Year 2010 Ibernian Pounds First cost |Net revenue 2014 to 2018 1 800 000 550 000 Further information is in the table below: Expected Ibermian inflation rate 10% Value of Ibernian pound in 2013 (S) 1.25 Expected annual rate of decline in the value of the İbernian pound 5% Expected inflation rate in Leftway's country 2.50% Lefeway's real MARR 15% a. What is the real Ibernian pound internal rate of return on this project? (Hint: Leftway's country can be ignored in answering this question.) b. What is the current pound internal rate of return? (Hint: Leftway's country can be ignored in answering this question.) c. Use the internal rate of return in dollars to decide if Leftway should accept the proposed contract.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter14: Multinational Capital Budgeting

Section: Chapter Questions

Problem 3IEE

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