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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
An American firm has the opportunity to acquire a target company in Mexico. The firm anticipates owning the subsidiary for years. Is this a profitable investment, and if so what is the projected NPV
Initial Outlay pesos
Cash Flow DF: pesos at the end of Year with Cash Flows increasing each year
Required Rate of Return k
Salvage Value SV pesos
Time at which target will be sold n
Assume that we will bring half of the positive cashflow back to the US each year. At the end of the years, all remaining cash will be converted back to US dollars. Assume exchange rates as unfavorable as Pesos per dollar or as favorable as Pesos per dollar. Exchange rate is Year Zero is Pesos per dollar. Run a model or multiple models. Would you accept or reject this takeover opportunity, and under what circumstances?
I would like the answer in an excel format so I can understand the steps taken to get the answer.
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