Question

please show solution in Excel. The answer should be 24,129.

Question 5 0 / 1 point Your company is looking at a new project in Mexico. The project will cost 900,000 pesos. The cash flows are expected to be 400,000 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? DO NOT USE DOLLAR SIGNS OR COMMAS IN YOUR ANSWER. ROUND ANSWER TO THE NEAREST CENT Answer: 34,632.2 X (24,129)

Answer 1

Fn=Forward rate for year t=Spot rate*((1+Mexico rate)/(1+US rate))^t

NPV=-900000/19.07+400000/1.1*1/F1+400000/1.1^2*1/F2+400000/1.1^3*1/F3+400000/1.1^4*1/F4+400000/1.1^5*1/F5

=-900000/19.07+400000/1.1*1/(19.07*(1.08/1.04)^1)+400000/1.1^2*1/(19.07*(1.08/1.04)^2)+400000/1.1^3*1/(19.07*(1.08/1.04)^3)+400000/1.1^4*1/(19.07*(1.08/1.04)^4)+400000/1.1^5*1/(19.07*(1.08/1.04)^5)
=24129