An American firm is evaluating an investment in Mexico. The project will require

Question

An American firm is evaluating an investment in Mexico. The project will require purchasing equipment from a variety of sources and shipping it to Mexico. The projected cost of buying the equipment and shipping it is $3.9 million. Once the project begins operations, it is expected to last for 5 years (assume straight line depreciation). Expected sales are $1,700,000 each year in the U.S. and the costs of the project are projected to be 8 million pesos each year for the 5 years. If taxes are 35%, the appropriate discount rate is 9% and you use the current exchange rate for pesos:

(a) Calculate the NPV in U.S. dollars. (Show all calculations and ignore working capital)

(b) Calculate the NPV in Mexican pesos. (Show all calculations and ignore working capital)

PLEASE CALCULATE BOTH PARTS! Thanks

Explanation / Answer

A SMALL MISTAKE WAS THERE IN ONE DESCRIPTION.... RECTIFIED NOW...

$1= 12.14 Mexican Pesos

$0.08= 1 Mexican Pesos

NPV IN PESOS>>

PLEASE RATE ONLY TO ONE PERSON THE HIGHEST RATING IN ORDER TO GIVE HIM/HER POINTS OR ELSE ALL POINTS WILL GO TO THE FIRST ANSWERER ONLY.. PLEASE CONSIDER THE TIME DEVOTED AND RATE ME LIFESAVER POINTS..

Dollars Conversion In Pesos Yearly sale 1,700,000.00 12.14 20,638,000.00 Yearly Sales (a) Yearly Costs (b) Yearly Sales -Yearly Cost (c=a-b) Tax Rate (d) Tax (e=d*c) Net Income (f=c-e) 20,638,000.00 8,000,000.00 12,638,000.00 35% 4,423,300.00 8,214,700.00

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