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 USD/MXP.
* You also think that with probability of 0.24 the Mexican economy
will weaken substantially, in which case the project's after tax
annual cash flow will be only 600K MXP.
Your required return on the project is 18%. What is the expected
value of the NPV of this project, as measured in USD?
As shown below, the Expected NPV is $81,928
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