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 6.00% in Mexico or 5.00% 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 |
Should the firm choose Mexico or Canada plant? Hint: Choose the plant with the highest EAA (i.e., higher benefit) Enter 1 for Mexico or 2 for Canada.
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Authors: Cathy Davis
1st Edition
1447306481, 978-1447306481
