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1 3 . Capital Budgeting Example. Brower, Inc., just constructed a manufacturing plant in Ghana. The construction cost 9 billion Ghanian cedi. Brower intends to
Capital Budgeting Example. Brower, Inc., just constructed a manufacturing plant in Ghana. The
construction cost billion Ghanian cedi. Brower
intends to leave the plant open for years. During the years of operation, cedi cash fl ows are expected to be billion cedi, billion cedi, and
billion cedi, respectively. Operating cash fl ows
will begin one year from today and are remitted
back to the parent at the end of each year. At the
end of the third year, Brower expects to sell the
plant for billion cedi. Brower has a required
rate of return of percent. It currently takes
cedi to buy one US dollar, and the cedi is
expected to depreciate by percent per year.
a Determine the NPV for this project. Should
Brower build the plant?
b How would your answer change if the value of
the cedi was expected to remain unchanged from
its current value of cedi per US dollar over
the course of the years? Should Brower construct
the plant then?
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