Capital Budgeting-Determine the NPV for project

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Reference no: EM131871319

Capital Budgeting. Smith Inc., just constructed a manufacturing plant in Ghana. The construction costs 9 billion cedi. Smith intends to leave the plant open for 3 years. During these 3 years of operation, the Smith subsidiary cash flows are expected to 3 billion cedi, 3 billion cedi, and 2 billion cedi (in years 1, 2, and 3). Operating cash flows will begin one year from today and are remitted back to the parent at the end of each year. At the end of the third year, Smith expects to sell the plant in Ghana for 5 billion cedi. Smith has a required return of 15%. It currently takes 8,700 cedi to buy one U.S. dollar, and the cedi is expected to depreciate by 5 percent per year.

a) Determine the NPV for this project in U.S. dollars. Should Smith construct the plant?

b) How would your answer change if the value of the cedi remained constant and did not depreciate each year? Should Smith construct the plant?

Reference no: EM131871319

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