Consider the following international investment opportunity:
Year0 |
Year1 |
Year2 |
Year3 |
-50,000euro |
15,000euro |
15,000euro |
20,000euro |
The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 3 percent and in the euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of this risk is 8 percent.
What is the euro-denominated IRR of this project?