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Determine the npv for project

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Reference no: EM133205052

Toyoda just constructed a manufacturing plant in Japan. The construction cost 35 million Japanese Yen. Toyoda intends to keep the plant open for three years. During the three years of operation, Japanese Yen cash flows are expected to be 15 million Japanese Yen, 15 million Japanese Yen, and 20 million Japanese Yen, respectively. 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, Toyoda expects to sell the plant for 10 million Japanese Yen. Toyoda has a required rate of return of 18 percent. It currently takes 140 Japanese Yen to buy one U.S. dollar, and the Japanese Yen is expected to depreciate by 10 percent per year.

  1. Determine the NPV for this project. Should Toyoda build the plant?
  2. How would your answer change if the value of the Japanese Yen was expected to remain unchanged from its current value of 140 Japanese Yen per U.S. dollar over the course of the three years? Should Toyoda construct the plant in that scenario?

Reference no: EM133205052

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