An American firm is evaluating an investment in Mexico. The project costs 500 million pesos, and it

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An American firm is evaluating an investment in Mexico. The project costs 500 million pesos, and it is expected to produce an income of 250 million pesos a year in real terms for each of the next 3 years. The expected inflation rate in Mexico is 4% a year, and the firm estimates that an appropriate discount rate for the project would be about 8% above the risk-free rate of interest. Calculate the net present value of the project in U.S. dollars. Exchange rates are given in Table 22.1. The interest rate is about 4.5% in Mexico and 1.5% in the United States.

An American firm is evaluating an investment in Mexico. The

* Direct quotes (number of U.S. dollars per unit of foreign currency). Other quotes are indirect (units of foreign currency per U.S. dollar).

An American firm is evaluating an investment in Mexico. The


Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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Fundamentals of Corporate Finance

ISBN: 978-0078034640

7th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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