A U.S. company is considering a project in Mexico. Estimated cash flows are 10 million Mexican pesos the first year and $20 million Mexican pesos the second year. The U.S. company would incur a cost of $2 million at the start of the project, and its cost of capital is 12%. The expected spot rate is $0.13 for Year 1 and $0.11 for Year 2.
(1)Calculate the net present value of this project . Show how you derive the answer; and (2) Should the U.S. company invest in the project? Why or why not?© BrainMass Inc. brainmass.com October 17, 2018, 12:22 pm ad1c9bdddf
The file shows the computation of NPV of international project.
NPV & IRR - Anderson International Limited
NPV and IRR
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Year Cash Flow
0 -$ 468,000
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 8.5 percent. Anderson uses a 15.5 percent required return on this project.
(a) What is the NPV of the project? (Round your answer to 2 decimal places, e.g. 32.16.)
(b) What is the IRR of the project? (Do not include the percent sign (%). Round your answer to 2 decimal places, e.g. 32.16.)
(c) Is the IRR you calculated the MIRR of the project?