Question

Apex, Inc. is a U.S.-based firm investing in a two-year project in Mexico. The present exchange...

Apex, Inc. is a U.S.-based firm investing in a two-year project in Mexico. The present exchange rate is 15 Mexican pesos per U.S. dollar. It is estimated that Mexico’s currency will be devalued in the international market at an average 2.1 % per year relative to the U.S. dollar over the next several years. The estimated before-tax net cash flow (in pesos) of the project is a follows:

                                    End of Year    Net Cash Flow (pesos)

                                                0                      - 900,000

                                                1                         480,000

                                                2                         720,000

If the U.S. company’s MARR is 20 % (before taxes) based on the U.S. dollar, what is the present worth (PW) of the project in terms of U.S. dollars? (Enter your answer as a number without the dollar $ sign.)

Homework Answers

Answer #1

Ans. Exchange rate at present, e = 15 Pesos/dollar

Depriciation rate of currency each year, d = 2.1% or 0.021

=> Exchange rate at end of year0, e0 = e*(1+d) = 15.315 pesos/dollar

=> Exchange rate at the end of year 1, e1 = e0*(1+d) = 15.636 Pesos/dollar

=> Exchange rate at the end of year 2, e2 = e1*(1+d) = 15.965 Pesos /dollar

=> Dollar value of cashflow at end of year 0 = 900000/e0 = $58765.916

=> Dollar value of cashflow at the end of year 1 = 480000/e1 = $30697.181

=> Dollar value of cashflow at the end of year 2 = 720000/e2 = $45098.699

Present worth of these dollar cashflows i.e. present value at starting of year 0 at MARR of 20%

PW = -58765.916/(1+ 0.20) + 30697.181/(1+0.20)^2 + 45098.699/(1+0.20)^3

=> PW = -$1555.32

* Please don’t forget to hit the thumbs up button, if you find the answer helpful.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Apex, Inc. is a U.S.-based firm investing in a two-year project in Mexico. The present exchange...
Apex, Inc. is a U.S.-based firm investing in a two-year project in Mexico. The present exchange rate is 16 Mexican pesos per U.S. dollar. It is estimated that Mexico’s currency will be devalued in the international market at an average 2.7 % per year relative to the U.S. dollar over the next several years. The estimated before-tax net cash flow (in pesos) of the project is a follows: End of Year Net Cash Flow (pesos) 0 - 900,000 1 480,000...
Your company is looking at a new project in Mexico. The project will cost 900,000 pesos....
Your company is looking at a new project in Mexico. The project will cost 900,000 pesos. The cash flows are expected to be 375,000 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...
An automobile manufacturing company in Country X is considering the construction and operation of a large...
An automobile manufacturing company in Country X is considering the construction and operation of a large plant on the eastern seaboard of the United States. Their MARR = 18% per year. (This is a market rate relative to their currency in Country X.) The study period used by the company for this type of investment is 10 years. Additional information is provided as follows: • The currency in Country X is the Z-Kron. • It is estimated that the U.S....
You are considering investing in a project in Mexico. The project will be a 2 year...
You are considering investing in a project in Mexico. The project will be a 2 year project, has an initial cost of 100K USD, and expected after tax profit of 1 million MXP per year. You expect the MXP to be valued at 0.12 USD/MXP. There are two major risks that you think have the potential to significantly affect project performance, which you assume are independent: * You think with probability of 0.19 that the MXP will depreciate to 0.1...
Vixor Co. is a U.S. firm conducting a financial plan for the next year. It has...
Vixor Co. is a U.S. firm conducting a financial plan for the next year. It has no foreign subsidiaries, but more than half of its sales are from exports. Its foreign cash inflows to be received from exporting and cash outflows to be paid for imported supplies over the next year are shown in the following table: Currency Total Inflow Total Outflow Candian Dollar (C$ C$40,000,000 C$10,000,000 New Zealand Dollar (NZ$) NZ$5,000,000 NZ$1,000,000 Mexican Peso (MXP) MXP11,000,000 MXP5,000,000 Singapore Dollar...
Net Present Value Use Exhibit 12B.1 and Exhibit 12B.2 to locate the present value of an...
Net Present Value Use Exhibit 12B.1 and Exhibit 12B.2 to locate the present value of an annuity of $1, which is the amount to be multiplied times the future annual cash flow amount. Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $1,850,000 and will last 10 years. Evee Cardenas is...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion 1 $128,000 $107,000 2 105,000 126,000 3 91,000 86,000 4 82,000 60,000 5 25,000 52,000 Total $431,000 $431,000 Each project requires an investment of $233,000. A rate of 15% has been selected for the net present value analysis. Present Value of $1 at Compound Interest Year...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion 1 $150,000 $126,000 2 123,000 147,000 3 106,000 101,000 4 96,000 71,000 5 30,000 60,000 Total $505,000 $505,000 Each project requires an investment of $273,000. A rate of 12% has been selected for the net present value analysis. Present Value of $1 at Compound Interest Year...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion 1 $160,000 $133,000 2 130,000 157,000 3 113,000 107,000 4 102,000 75,000 5 32,000 65,000 Total $537,000 $537,000 Each project requires an investment of $290,000. A rate of 10% has been selected for the net present value analysis. Present Value of $1 at Compound Interest Year...
Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project...
Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion 1 $118,000 $98,000 2 96,000 116,000 3 83,000 79,000 4 75,000 55,000 5 24,000 48,000 Total $396,000 $396,000 Each project requires an investment of $214,000. A rate of 20% has been selected for the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893...