Project Information for firm ABC:

-Ignore initial investment focus on capital budgeting

-Will export product to Mexico and is looking for firm to swap pesos with over life of project

-Time period of project is 4 years

-After tax cash flow expected to be 1,000,000 pesos

-Pesos spot rate is $0.20

-Risk free annual interest rates: U.S. 6 percent, Mexico 11 percent

-Interest rate parity exists

-Use one year one year forward rate as predictor of exchange rate in one year

-Exchange rates will change by same percentage predicted for year one in years 2 through 4

-Firm XYZ will take the 1,000,000 pesos each year at an exchange rate of $0.17 per peso

-Ignore taxes

ABCs details:

Capital Structure:	60 percent debt and forty percent equity
Corp. Tax rate:	30 percent
Debt financing cost:	10 percent
US expected stock returns:	18 percent
Beta:	0.9

ABC will use its cost of capital as required return on project

Determine the NPV if ABC enters into a swap agreement with XYZ and does not hedge its position.