An American firm has the opportunity to acquire a target company in Mexico. The firm anticipates owning the subsidiary for

$8$

$$years$.$ Is this a profitable investment, and if so

$,$

$$what is the projected NPV

$?$

Initial Outlay

$=$

$2$

$0$

$0$

$,$

$0$

$0$

$0$

$,$

$0$

$0$

$0$

$$pesos

Cash Flow

$($

DF

$)$

:

$5$

$0$

$,$

$0$

$0$

$0$

$,$

$0$

$0$

$0$

$$pesos at the end of Year

$1$

$,$

$$with Cash Flows increasing

$1$

$8$

$\%$

$$each year

Required Rate of Return

$($

k

$)$

$=$

$2$

$0$

$\%$

Salvage Value

$($

SV

$)$

$=$

$7$

$5$

$,$

$0$

$0$

$0$

$,$

$0$

$0$

$0$

$$pesos

Time at which target will be sold

$($

n

$)$

$=$

$8$

Assume that we will bring half of the positive cashflow back to the U

$.$

S

$.$

$$each year. At the end of the

$8$

$$years$,$ all remaining cash will be converted back to U

$.$

S

$.$

$$dollars$.$ Assume exchange rates as unfavorable as

$2$

$3$

$$Pesos per dollar or as favorable as

$1$

$7$

$$Pesos per dollar. Exchange rate is

$$

Year Zero

$$

$$is

$2$

$0$

$$Pesos per dollar. Run a model or multiple models. Would you accept or reject this takeover opportunity, and under what circumstances?