Zimmer a manufacturer of modular rooms, plans to expand its operations in Landsh

Question

Zimmer a manufacturer of modular rooms, plans to expand its operations in Landshut, Germany. The expansion will cost $14.5 million is expected to generate annual net cash flows of 2.15 millon euros for a period of 12 years and then the operation will be sold of 1 million euros (net of taxes). The cost of capital for the project is . Using a spot exchange rate of $1.25/euros as the forcast FX rate for the euro for the term of the project, compute the NPV of this expansion project.
you should convert 2.25 Euros to dollars first.

Explanation / Answer

intial expansion cost=14.5million $ the cost of capital is missing there assuming caost of the capital to be i the future annual cash flow=2.15million euro/year 1euro=1.25$ hence 2.15million euro=2.6875million$ time = 12 years NPV=-14.5M$+2.69M$/(1+i)+2.69M$/(1+i)^2+2.69M$/(1+i)^3+2.69M$/(1+i)^4+2.69M$/(1+i)^5+2.69M$/(1+i)^6+2.69M$/(1+i)^7+2.69M$/(1+i)^8+2.69M$/(1+i)^9+2.69M$/(1+i)^10+2.69M$/(1+i)^11+2.69M$/(1+i)^12 assuming the i=10% NPV=3.82 million $

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