Do you think piedmont will overestimate npv of the project

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Reference no: EM13935635

Estimating the NPV. Assume that a less developed country called LDC encourages foreign direct invest- ment (FDI) in order to reduce its unemployment rate, currently at 15%. Also assume that several MNCs are likely to consider FDI in this country. The inflation rate in recent years has averaged 4%. The hourly wage in LDC for manufacturing work is the equivalent of about $5 per hour. When Piedmont SpA (Italy) develops cash flow forecasts to perform a capital budgeting analysis for a project in LDC, it assumes a wage rate of 5 euros in Year 1 and applies a 4% increase for each of the next ten years. The components produced are to be exported to Piedmont's headquarters in Italy, where they will be used in the production of computers. Do you think Piedmont will overestimate or underestimate the net present value of this project? Why? (Assume that LDC's currency is tied to the euro and will remain that way.)

Reference no: EM13935635

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