Question: Suppose a U.S. multinational firm estimates that a $150 million capital expenditure in a new plant in an unstable developing country will have a life
Suppose a U.S. multinational firm estimates that a $150 million capital expenditure in a new plant in an unstable developing country will have a life of two years before it is confiscated by the foreign government. During this two-year period, the operating cash flows will be $100 million each year. In addition, the firm will be able to use the new facility to repatriate $10 million each year in funds that have been held in the country involuntarily. If the discount rate for the operations cash flows is 10 percent and the discount rate for the exchange control avoidance is 8 percent, what is the adjusted present value of the project?
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