Question

Q.1 You are planning a few trips,

A.)Your company is looking at a new project in Mexico. The project will cost 1,075,000 pesos. The cash flows are expected to be 325,000 pesos per year for 5 years. The current spot exchange rate is 19.07 pesos per dollar. The risk-free rate in the US is 4%, and the risk-free rate in Mexico 8%. The dollar required return is 10%. What is the net present value of this investment in U.S. Dollars?

B.) You are planning a trip to Japan.You expect the trip will cost you $3,000 U.S. dollars while you are in Japan. Before you go on your trip you want to convert all of your U.S. dollars to Japanese yen. How much yen will you need for your trip if one dollar cost ¥116.45?

Answer 1

A)

Year	Exchnge rate	Exchange rate	Cash flow in pesos	Cashflow in USD	PV @10%	PRESENT VALUE
0	19.07	19.0700	(1,075,000.00)	$                         (56,371.26)	1	$          (56,371.26)
1	Y0*1.08/1.04	19.8035	325,000.00	$                            16,411.27	0.909	$            14,917.85
2	Y1*1.08/1.04	20.5651	325,000.00	$                            15,803.45	0.8264	$            13,059.97
3	Y2*1.08/1.04	21.3561	325,000.00	$                            15,218.13	0.7513	$            11,433.38
4	Y3*1.08/1.04	22.1775	325,000.00	$                            14,654.50	0.683	$            10,009.02
5	Y4*1.08/1.04	23.0305	325,000.00	$                            14,111.74	0.6209	$              8,761.98
		NPV				$              1,810.94

B)Total amount neede for trip = $ 3000*116.45 = YEN 349350