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A Southern California based firm is forced to choose between Mexico or Canada to build its manufacturing plant. The cash flows of both plants are
| A Southern California based firm is forced to choose between Mexico or Canada to build its manufacturing plant. |
| The cash flows of both plants are shown below. |
| The firm can operate its trucks for extra two years if it chooses Mexico, thus giving Mexico project extra two year life. |
| The firm can borrow from local banks at a rate of 5.00% in Mexico or 4.00% in Canada |
| Mexico | Canada | Year |
| -$120,000 | -$110,000 | 0 (Purchase Price) |
| $30,000 | $40,000 | 1 |
| $30,000 | $40,000 | 2 |
| $30,000 | $40,000 | 3 |
| $30,000 | 4 | |
| $30,000 | 5 |
| How much is the EAA (effective annual annuity) for the Mexico project? |
| Enter your answer in the following format: + or - 1,234; Hint: Answer is between 2,055 and 2,488 |
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The Business Credit Handbook
Authors: Mr. Reid A. Nunn
1st Edition
1500542725, 978-1500542726
