MegaWash, Inc., is considering an expansion of their productline to Mexico. This would require a purchase of equipment with aprice of 3,000,000MXN and additional installation of 500,000MXN, tobe depreciated straight-line to zero over the 5-year life of theasset. They will not be replacing any existing equipment. Theirrequired rate of return is 15% and they are in the 35% tax bracket.The new product line is expected to increase sales by 800,000MXNper year over current levels for the next 5 years, and expenseswill increase by 400,000MXN. Assume the after-tax operating cashflows in years 1-5 are equal, and the terminal value of the projectin year 5 may change total after-tax cash flows for that year. Theequipment is multipurpose, and the company anticipates that theywill sell it at the end of the five years for 600,000MXN. Theinitial investment also requires an increase in Net Working Capital(NWC) of 150,000MXN (to be recovered at the sale of the equipmentat the end of five years). The current spot rate is $0.75/MXN, andthe expected inflation rate in the U.S. is 3% per year and 2% peryear in Mexico.
Question: In pesos, what is the NPV of theMegaWash expansion?
