Bradenton searches for a firm with which it can swap pesos for dollars over each of the next 4 years. Briggs Co. is an importer of Mexican products. It is willing to take the 1 million pesos per year from Bradenton Co. and will provide Bradenton Co. with dollars at an exchange rate of $.17 per peso. Ignore tax effects.

Bradenton Co. has a capital structure of 60 percent debt and 40 percent equity. Its corporate tax rate is 30 percent. It borrows funds from a bank and pays 10 percent interest on its debt. It expects that the U.S.

annual stock market return will be 18 percent per year.

Its beta is .9. Bradenton would use its cost of capital as the required return for this project.

a. Determine the NPV of this project if Bradenton engages in the currency swap.

b. Determine the NPV of this project if Bradenton does not hedge the future cash flows.