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Determine the company should proceed with overseas

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Reference no: EM133121041

Assume a company in Mesa is considering the establishment of a subsidiary in Guatemala by year's end. The Initial Investment in dollars is $5m with an attendant Cost of Capital of 13%. All cash flows generated from the project will be remitted at the end of each year and given below in pesos.

Y1: 10,000,000 pesos

Y2: 15,000,000 pesos

Y3: 17,000,000 pesos

Y4: 20,000,000 pesos

Current exchange rate is $0.135. Exchange rate forecast for the peso ver the life of the project is as follows

Y1: $0.13

Y2: $0.14

Y3: $0.12

Y4: $0.15

1. Determine if the company should proceed with overseas expansion by calculating NPV and IRR

2. The company wants to adjust Cost of Capital from 13% to 16%. Determine the new NPV and IRR. Should they proceed with its original plan, why?

Reference no: EM133121041

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