Question
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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Finance For Housing An Introduction
Authors: Cathy Davis
1st Edition
1447306481, 978-1447306481
