Question

1. Lawson is a U.K- based wine and spirits company. It seeks to create a fine wine division to enhance its portfolio of global properties. The CFO is scrutinizing a proposal to make an investment in a vineyard in Chile. It requires the purchase of 20 acres of vineyards in the Maipo valley and setting up the requisite infrastructure for processing grapes and bottling wine. The project is expected to last five years, after which an exit through its sale to a local affiliate is assumed. The following table lists the cash flows denominated in the Chilean peso (CLP). Assume spot GBPCLP = 600

Time	Cash Flow (CLP Millions)
0	-200
1	100
2	80
3	160
4	140
5	240

a. The appropriate CLP discount rate for projects of this nature is 15 percent. What is project NPV in CLP?

   b. Assume that GBPCLP remains constant at 600. Convert project cash flows into GBP (pounds). Using Lawson’s GBP WACC of 10 percent, calculate the project NPV in GBP.

Please show work and formulas used. Than You!

Answer 1

a.

Time	Cash Flow (CLP Millions)	Discount Factor @ 15%	Present value of Cash Flow (CLP Millions)
0	-200	1	-200.00
1	100	0.870	87.00
2	80	0.756	60.48
3	160	0.658	105.28
4	140	0.572	80.08
5	240	0.497	119.28
NPV			252.12

NPV= sum of present value of cash flows

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b.

Time	Cash Flow (CLP Millions)	Cash Flow (GBP Millions)***	Discount Factor @ 10%	Present value of Cash Flow (CLP Millions)
0	-200	-0.33	1	-0.3333
1	100	0.17	0.909	0.1515
2	80	0.13	0.826	0.1101
3	160	0.27	0.751	0.2003
4	140	0.23	0.683	0.1594
5	240	0.40	0.621	0.2484
NPV				0.5363

***Cash Flow (GBP Millions)= Cash Flow (CLP Millions)/600

GBPCLP = 600

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