An American firm is evaluating an investment in Mexico Calculate the NPV in U.S. dollars

An American firm is evaluating an investment in Mexico Calculate the NPV in U.S. dollars

Subject: Business    / Finance
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 $2.2 million. Once the project begins operations, it is expected to last for 5 years (assume straight line depreciation). Expected sales are $1,900,000 each year in the U.S. and the costs of the project are projected to be 5 million pesoseach 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)