Reference no: EM133204978

Reggae Inc. just constructed a manufacturing plant in Jamaica. The construction cost 50 million Jamaican dollars. Reggae intends to keep the plant open for three years. During the three years of operation, Jamaican dollar cash flows are expected to be 20 million Jamaican dollars, 15 million Jamaican dollars, and 20 million Jamaican dollars, 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, Reggae expects to sell the plant for 15 million Jamaican dollars. Reggae has a required rate of return of 15 percent. It currently takes 150 Jamaican dollars to buy one U.S. dollar, and the Jamaican dollar is expected to depreciate by 8 percent per year.

1. Determine the NPV for this project. Should Reggae build the plant?
2. How would your answer change if the value of the Jamaican dollar was expected to remain unchanged from its current value of 150 Jamaican dollar per U.S. dollar over the course of the three years? Should Reggae construct the plant in that scenario?