Final Case: Your firm is considering buying and retrofitting a small production plant in Poland to build and sell wind turbines. The plant (and retrofit) will cost $100,000,000 US. Your marketing division's best guess is that they can sell between 2500 and 3000 units per year with a net profit per unit of 40,000PZ (Polish Zloty). The current exchange rate is IPZ =0.24 USS. The Zloty is anticipated to lose about 1% of its relative value each year in the currency forward markets. After the anticipated 10 years of operations, the plant will be worth about half its current cost when sold for another purpose. Your engineers suggest that 10 years is about the longest your technology can remain marketable as newer wind turbines are likely to be developed. Construct the best-and worst-case scenarios for sales figures to calculate the payback period, discounted payback period, and net present value. The company ownership team recognizes that this is a modestly risky venture and while borrowing costs are presently 5%, they expect some adjustments in the discount rate to reflect that modest level of risk looking forward. If the plant can be sold to a local buyer (paying in PZ), what is the anticipated sale price? What is that worth in USS? What is the internal rate of return on this investment opportunity? How does this compare to your chosen risk-adjusted-discountingrate? If the Polish Government permits the cash flows generated to be repatriated to the US each year and your firm is reinvesting those cash flows into bank CDs paying 2.5%, what is the MIRR? If your chosen discounting rate is deemed too high or too low by the ownership team, how do your answers change if they require the use of a rate that is significantly higher or lower than yours? Finally, the Profitability Ratio is measured by the NPV divided by the initial cost (dropping the negative sign). How does this ratio change based on having to change the discount rate to reflect the ownership teams preferences of a very different discount rate? Please explain why the choice of discount rate is so important. This may help to clarify why two investors looking at the exact same investment opportunity, with the exact same estimated cash flows, can arrive at very different conclusions. What happens if the engineers are wrong, and you only have 8 years of viable technology in the market? What happens if the Polish Government decides to take a nationalistic approach to managing their currency and they are able to achieve 5% annual increases in the value of the PZ against the US\$ during the 10 years? Final exam problems: From the homework sets, recalculate the problems adjusting the relevant discount rates by 2% - both upward and downward. How does this relatively small adjustment change your answers? Is the change sufficient for you to change your answers regarding which choices make the most sense