Blue Elk Manufacturing is a U.S. firm that wants to expand its business internationally. It...
80.2K
Verified Solution
Link Copied!
Question
Finance
Blue Elk Manufacturing is a U.S. firm that wants to expand its business internationally. It is considering potential projects in both Italy and Mexico, and the Italian project is expected to take six years, whereas the Mexican project is expected to take only three years. However, the firm plans to repeat the Mexican project after three years. These projects are mutually exclusive, so Blue Elk Manufacturings CFO plans to use the replacement chain approach to analyze both projects. The expected cash flows for both projects follow:
Project:
Italian
Year 0:
$975,000
Year 1:
$350,000
Year 2:
$370,000
Year 3:
$390,000
Year 4:
$320,000
Year 5:
$115,000
Year 6:
$80,000
Project:
Mexican
Year 0:
$425,000
Year 1:
$175,000
Year 2:
$200,000
Year 3:
$210,000
If Blue Elk Manufacturings cost of capital is 13%, what is the NPV of the Italian project?
$211,082
$191,893
$182,298
$172,704
Assuming that the Mexican projects cost and annual cash inflows do not change when the project is repeated in three years and that the cost of capital will remain at 13%, what is the NPV of the Mexican project, using the replacement chain approach?
$56,952
$65,088
$59,664
$54,240
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
