Exports by the soft-drink manufacturer Ecsy-Cola Corporation have risen to

Exports by the soft-drink manufacturer Ecsy-Cola Corporation have risen to the point that it is considering establishing a small manufacturing and sales operation overseas in Ruritania.The current spot rate is 100 pesos per dollar. The interest rate in the United States is 3%. Ecsy's financial manager estimates that the company requires an additional expected return of 10% to compensate for the risk of the project, so the opportunity cost of capital for the project is 3 + 10 = 13%. Suppose Ecsy-Cola's Ruritanian facility is expected to generate the following cash flows in Ruritanian pesos.

Exports by the soft-drink manufacturer Ecsy-Cola Corporation have risen to


Suppose that you do use your own views about exchange rates when valuing an overseas investment proposal. Specifically, suppose that you believe that the peso will depreciate by 2% per year. Recalculate the NPV of Ecsy's project.

Exports by the soft-drink manufacturer Ecsy-Cola Corporation have risen to


Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...