Scenario: Your group has been hired as financial consultants for PJ corporation. PJ is considering investing in a new plant in Mexico to produce dog biscuits. PJ has provided you with the following information: Full price of machine is 150,000,000 MXN. $/MXN = 0.05. Production costs = 90,000,000 MXN each year for the life of the project. PJ can transport the dog biscuits back to the USA for $1,000,000 per year where you can sell them for $7,500,000. The plant falls into the MACRS 3-year class and will require an increase in net working capital of 1,000,000 MXN. PJ has a 30% marginal tax rate. PJ will use the machine for 6 years and then plans to sell it for 20,000,000 MXN at the end of year 6. PJ has a WACC of 10%. Your group has been hired by PJ to create a spreadsheet (50 points) that can be used by the PJ managers to assist them in making the investment decision and will calculate the NPV and IRR of the project. The spreadsheet should be set up to allow for sensitivity analysis to be conducted. The cells to input the full price, the exchange rate for each year over the life of the project, the production costs, the transportation costs, the sales revenue, the increase in net working capital, the tax rate, the sale price for the machine at the end of year 6 and the WACC should be easily identified and allow the PJ managers to change their values. Additionally, on a separate sheet in the same MS-Excel file, type your answers to the following 3 questions:

Question 1: What is your investment recommendation and justification based on the assumptions provided (approximately 25 words total, 20 points)?

Question 2: Assume that the $ is going to depreciate versus the MXN over the next 6 years. How would the $ depreciation affect your recommendation (approximately 25 words total, 20points)?

Question 3: What type of financial contract that could mitigate the effect of a depreciating dollar (approximately 25 words total, 10 points)?