Please show formulas and workings Moon Rhee Auto Supply, a Korean supplier of pa

Question

Please show formulas and workings

Moon Rhee Auto Supply, a Korean supplier of parts to Kia Motors, is evaluating an opportunity to set up a plant in Alabama, where Kia Motors has an auto assembly plant for its SUVs.

The cost of this plant will be $13.5 million.

The current spot rate is 946.53 Korean won per U.S. dollar.

The company uses a discount rate of 9 percent for projects in the United States. The company is expected to use this plant for the next five years and is expecting to generate the following cash flows.

Years 1 - 2 - 3 - 4 - 5

Cash flows (US millions) 2.3 - 4.2 - 3.6 - 5.8 - 7.6

Expected exchange rate (Korean won/$) 932.031 - 923.632 - 956.155 - 952.221 - 943.670

Required What is the NPV of this project?

Should Moon Rhee Auto Supply take on this project?

Explanation / Answer

Totat discounted CashFlows 17.43
Intial cost (13.5)

Net Present Value 3.93

this is good project which will provide good cash inflows.

years cash inflows (millions) present value factors discounted cash flows 1 2.3 0.917 2.10 2 4.2 0.841 3.53 3 3.6 0.772 2.77 4 5.8 0.708 4.10 5 7.6 0.649 4.93

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