Question

Sacramone Products Co. is a U.S.-based firm evaluating a project in Mexico. You have the following information about the project: • The project requires a 150,000 peso investment today and is expected to generate cash flows of 61,500 pesos at the end of the next three years. • The current U.S. exchange rate with the Mexican peso is 11.567 pesos per U.S. dollar, and the exchange rate is expected to remain constant. • The firm's cost of capital is 9%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? $466.05 $441.52 $416.99 $490.58

Answer 1

NPV of the project is $ 490.58

Given Initial investment in peso = 1,50,000 peso Exclucing ratio 1$ = 11:567 peso ci Amoud invested in $ terms= $ 12,967.93 11 50,000 peso [ 11.567 Peso $ 2. I Cash flows generated per annam ? 1 = 61, 500 for next three yeared t pesos in $ teruf = $5,316.85 calle in flows per annan [61,5001 11.567 cost of capital. = 94. Present value of cash infloud in $ terms - $5,316.85 x PVAF (@years. 92.)] = $5,316.85X25319 = $13,458.54 Npr of the project = $13, 4.58.54 - $ 12,967.93 | = $ 490.61 ~ 490.58