Zolar, Inc, just constructed a manufacturing plant in Canada. The construction cost 9 billion Canadian dollar....

Zolar, Inc, just constructed a manufacturing plant in Canada. The construction cost 9 billion Canadian dollar. Zolar intends to leave the plant open for 3 years. During the 3 years of operation, dollar cash flows are expected to be 3 billion dollar, 3 billion dollar and 2 billion dollar respectively. Operating cash flows will begin one year from today and are remitted back to the parent at the end of each year. At the end of the third year, Zolar expects to sell the plant for 5 billion dollar. Zolar has a required rate of return of 17 percent. It currently takes 1.28 to buy one U.S. dollar and the Canadian dollar is expected to depreciate by 5 percent per year.

(i) Determine the NPV for this project. Should Zolar build the plant?

(ii) How would your answer change if the value of the Canadian dollar was expected to remain unchanged from its current value of 1.28 Canadian dollar per U.S. dollar over the course of the 3 years? Should Brower construct the plant then?

(Please provide Explanation)

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

(10 pts) Brower, Inc. just constructed a manufacturing plant in Europe. The construction cost 10 million...

(10 pts) Brower, Inc. just constructed a manufacturing plant in Europe. The construction cost 10 million Euros. Brower intends to leave the plant open for three years. During the three years of operation, Euro cash flows are expected to be 1 million euros, 2 million euros, and 3 million euros, respectively. Operating cash flows will begin one year from today and are remitted back to the parent at the end of each year. At the end of the third year,...

Brower, Inc. just constructed a manufacturing plant in Europe. The construction cost 10 million Euros. Brower...

Brower, Inc. just constructed a manufacturing plant in Europe. The construction cost 10 million Euros. Brower intends to leave the plant open for three years. During the three years of operation, Euro cash flows are expected to be 1 million euros, 2 million euros, and 3 million euros, respectively. Operating cash flows will begin one year from today and are remitted back to the parent at the end of each year. At the end of the third year, Brower expects...

Brower, Inc. just constructed a manufacturing plant in Ghana. You are given the following information: The...

Brower, Inc. just constructed a manufacturing plant in Ghana. You are given the following information: The construction cost (in billion Ghanian cedi): 11 Brower intends to leave the plant open for three years. Operating cash flows will begin one year from today and are remitted back to the parent at the end of each year. During the three years of operation, cedi operating cash flows are expected as follows: Year CF 1 4 2 5 3 4 At the end of...

Discuss the following... a. "A strong Canadian dollar is in the interest of Canada." Is this...

Discuss the following... a. "A strong Canadian dollar is in the interest of Canada." Is this statement true? Justify your answer. b. How is a change in the interest rate likely to affect an economy? The Minister for Finance has been advised to that to stimulate economic growth, he should use the interest rate as a policy instrument and a fixed exchange rate. Evaluate this advice.

Beta Inc. wants to construct a manufacturing plant in Brazil. The construction will cost 900 million...

Beta Inc. wants to construct a manufacturing plant in Brazil. The construction will cost 900 million Brazilian Real. Beta intends to operate the plant for 3 years. During the 3 years of operation, Real (BRL) cash flows are expected to be 300 million BRL, 300 million BRL, and 200 million BRL, respectively. Operating cash flows will begin 1 year from today and are remitted back to the Canadian parent at the end of each year. At the end of the...

Irwin, Inc., constructed a machine at a total cost of $58 million. Construction was completed at...

Irwin, Inc., constructed a machine at a total cost of $58 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $3 million. At the beginning of 2018, Irwin decided to change to the straight-line method. Ignoring income taxes, prepare the journal entry relating to the machine for 2018....

Irwin, Inc. constructed a machine at a total cost of $23 million. Construction was completed at...

Irwin, Inc. constructed a machine at a total cost of $23 million. Construction was completed at the end of 2017 and the machine was placed in service at the beginning of 2018. The machine was being depreciated over a 10-year life using the straight-line method. The residual value is expected to be $3 million. At the beginning of 2021, Irwin decided to change to the sum-of-the-years’-digits method. Ignoring income taxes, prepare the journal entry relating to the machine for 2021....

Irwin, Inc., constructed a machine at a total cost of $57 million. Construction was completed at...

Irwin, Inc., constructed a machine at a total cost of $57 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $2 million. At the beginning of 2018, Irwin decided to change to the straight-line method. Ignoring income taxes, prepare the journal entry relating to the machine for 2018....

Irwin, Inc., constructed a machine at a total cost of $41 million. Construction was completed at...

Irwin, Inc., constructed a machine at a total cost of $41 million. Construction was completed at the end of 2012 and the machine was placed in service at the beginning of 2013. The machine was being depreciated over a 10-year life using the straight-line method. The residual value is expected to be $3 million. At the beginning of 2016, Irwin decided to change to the sum-of-the-years’-digits method. Ignoring income taxes, prepare the journal entry relating to the machine for 2016.

Irwin, Inc., constructed a machine at a total cost of $23 million. Construction was completed at...

Irwin, Inc., constructed a machine at a total cost of $23 million. Construction was completed at the end of 2012 and the machine was placed in service at the beginning of 2013. The machine was being depreciated over a 10-year life using the straight-line method. The residual value is expected to be $3 million. At the beginning of 2016, Irwin decided to change to the sum-of-the-years’-digits method. Ignoring income taxes, prepare the journal entry relating to the machine for 2016.

Subjects