Pexi Inc., plans to construct a manufacturing plant in Mexico. This is expected to cost

US$100 million. Pexi intends to leave the plant open for three years. During the three years

of operation, cash flows are expected to be 518 million Mexican pesos in Year 1, 650 million

pesos in Year 2 and 600 million pesos in Year 3.

At the end of the third year, the company expects to sell the plant for 700 million pesos.

The exchange rates are expected to be MXN20.12, MXN20.5 and MXN20.95 per US$ for years 1, 2 and 3 respectively.

The firms cost of capital is 12%.

The required rate of return on this project is 16%.

All cash flows are remitted back to the parent at the end of each year.

a. What is the amount of US dollars that will be remitted to the parent company each year?

b. Which rate should be used to discount the cash flows?

c. Calculate the present values of the remitted cash flows.

d. What is the NPV of the project?

e. Calculate the projects break-even salvage value

f. Should the project be accepted?