MNC is considering establishing a two-years project in West Germany with a $30 m

Question

MNC is considering establishing a two-years project in West Germany with a $30 million initial investment. The required rate of return on this project is 18%. The project is expected to generate cash flows of Euro 12 million in year 1 and Euro 30 million in year 2, excluding the salvage value. Assume no taxes. Exchange rate of $0.98/Euro. All cash flows are remitted to the parent. What is the NPV of the project in ($)? Please show steps MNC is considering establishing a two-years project in West Germany with a $30 million initial investment. The required rate of return on this project is 18%. The project is expected to generate cash flows of Euro 12 million in year 1 and Euro 30 million in year 2, excluding the salvage value. Assume no taxes. Exchange rate of $0.98/Euro. All cash flows are remitted to the parent. What is the NPV of the project in ($)? Please show steps Please show steps

Explanation / Answer

Details Year 0 Year 1 Year 2 Cash flow in Euro      12,000,000      30,000,000 Exchange rate $0.98/Euro                   0.98                   0.98 Cash flow in $ term        11,760,000      29,400,000 NPV calculation in $ term Details Year 0 Year 1 Year 2 Investments       (30,000,000) Cash Inflows      11,760,000      29,400,000 Net Cash flow     (30,000,000)      11,760,000      29,400,000 PV factor @ 18%                           1                0.847                 0.718 PV of Cash flows       (30,000,000)        9,966,102      21,114,622 NPV =Sum of Cash flows $ 1,080,723.9

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