in Euro in MXN

New Machine Cost 220,000 3500000

Estimated life 10 10

Annual pretax cost saving

Old Machine book value 100,000 250000

Old Machine market value 50,000 175000

France Discount Rate similar risk projects 8.00% 8%

Tax rate 35.00% 35%

1- Assume 4% inflation going forward in France.Based on this assumption and the information contained in the case, what hurdle (discount or cost of capital) rate, in pesos, would you use to discount the cash flows from the project?

2) Compute the project cash flows in pesos for years 0 through 10 and calculate the NPV in pesos.Calculate the MIRR of the project assuming reinvestment rate is equal to cost of capital. Should the project be accepted or rejected?

3) Convert the Peso NPV to Euros at the June 23, 2008 spot exchange rate.

4) Prepare a sensitivity analysis data table showing how different inflation rates in France (3%, 4%, 5%, and 6%) and Mexico (6%, 7%, 8%, and 9%) will affect the NPV in Euros of the proposed project.