Tass Co., Ltd, a Japanese electrical parts producer, is considering building a plant in the U.S. The

Question:

Tass Co., Ltd, a Japanese electrical parts producer, is considering building a plant in the U.S. The cost of this plant will be $20 million and the current spot exchange rate between the yen and the U.S. dollar is ¥101.8/$. Tass management expects to use this plant for the next five years and expects it to generate the following cash flows during this period.

If Tass uses a discount rate of 8 percent for projects in the United States, what is the NPV of this project? Should Tass Company take on this project?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...