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

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 $4.2 million. Once the project begins operations, it is expected to last for 5 years (assume straight line depreciation). Expected sales are $2,900,000 each year in the U.S. and the costs of the project are projected to be 7 million pesos each year for the 5 years. If taxes are 35%, the appropriate discount rate is 10% 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)

Explanation / Answer

Answer :

Answer 2 :

NPV in USD Sales 2900000 Cost '7000000*0.059 413000 Gross Income 2487000 Depreciation '4200000/5 840000 EBT 1647000 Tax @35% 576450 Income After Tax 1070550 Cash Inflow (Depreciation +Net Income) 1910550 PV Factor 10 % for 5 Years 3.791 Present Value 7242895 Initial Out lay 4200000 Net Present Value IN USD 3042895

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.