7. International capital budgeting
One of the important components of multinational capitalbudgeting is to analyze the cash flows generated from subsidiarycompanies.
Consider this case:
Sacramone Products Co. is a U.S.-based firm evaluating a projectin Mexico.
You have the following information about the project:
| • | The project requires a 130,000 peso investment today and isexpected to generate cash flows of 61,500 pesos at the end of thenext three years. |
| • | The current U.S. exchange rate with the Mexican peso is 10.946pesos per U.S. dollar, and the exchange rate is expected to remainconstant. |
| • | The firm’s WACC is 9%, and the project is of average risk. |
What is the dollar-denominated net present value (NPV) of thisproject?
$2,580.13
$2,345.57
$2,697.41
$2,228.29
