The Mexican company Minas de Cobre del Noroeste has 2 exclusive projects, one in Nacozari Sonora Mexico and another in the western part of Russia. You are asked as an evaluator to recommend the best option. Consider the Minimum Trema acceptable for both projects.

Project: Nacozari Sonora Mexico (Mexican pesos)
• Initial Investment: 24,000,000
• Annual flows growing 10% annually: 5,000,000
• Salvage value: 10,000,000
• ISR: 30%
• Straight Line Depreciation
• Period: 6 years
• Estimated annual inflation: 8%

Project: Western Russia (Russian rubles)
• Initial Investment: 25,000,000
• Annual flows growing 15% annually: 4,000,000
• Accelerated Depreciation 2X (in Russia there is no tax benefit for depreciation)
• ISR: 0% the first 3 years, 1% the following 3 years (to attract investment derived from the conflict with Ukraine)
• Period: 6 years
• Exchange rate: 2 rubles : 1 peso
• Estimated annual inflation: 13%

Derived from the capital structure of the company, the Board of Directors asks to finance the initial investment under the following guidelines; 40% with long-term debt through a bond or a bank loan and 60% with own capital, started with retained earnings and, if necessary, carry out a new issue of common shares, which will cost 2% more than Retained Earnings.

- ISR: 30%
- Retained earnings: $10 million
- You can issue bonds or request a bank loan for up to $50 million: cost of the bond is 8% after taxes; cost of bank credit 12.5% after taxes.
- Enterprise Beta: 1.2
- Average market return (IPC) for the next few years is estimated at 5%.
- CETES: estimated annual yield of 2%.

Dividend   4.00
Flotation cost   0.4
g   4.00%
nominal share price   40.00
sale price of new   38.00

Answer rating: 100% (QA)

ANSWER i The highquality choice is to make investments withinside the Nacozari Sonora Mexico mission ... View the full answer