Zimmer a manufacturer of modular rooms, plans to expand its operations in Landsh

Question

Zimmer a manufacturer of modular rooms, plans to expand its operations in Landshut, Germany. The expansion will cost $14 million is expected to generate annual net cash flows of 2.15 millon euros for a period of 12 years and then the operation will be sold of 1 million euros (net of taxes). The cost of capital for the project is . Using a spot exchange rate of $1.25/euros as the forcast FX rate for the euro for the term of the project, compute the NPV of this expansion project.

Can I also please get an explaination with the answer. Thanks

Explanation / Answer

Cash flows are as follows: Time period 0 : -$14 million Time period 1 to 11: = 2.15 * 1.25 = $2.6875 million Time period 12 = (2.15 + 1) * 1.25 = $3.9375 million Discounting the cash flows at the cost of capital of 14%, the NPV of the project = -$43,148.53

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