Question

A project being considered by a US MNC in Mongolia has the following parameters:

Expected Lifetime	5 years
Initial Cost	MNT 7.5 billion
Exepcted Annual Cash Fow	MNT 1.6 billion
Required Return	20%
Current Spot Rate of Mongolian Tugrik (MNT)	$.00053

The spot rate of the Tugrik is expected to remain stable for 4 years; it is expected the Tugrik will appeciate by 10% relative to the USD in year 5.

WHAT IS THE BREAKEVEN AFTER-TAX SALVAGE VALUEIN MONGOLIAN TUGRIK?

Answer 1

Calculation of Break-even Salvage Value
Exepcted Annual Cash Fow	MNT 1.6 billion
Expected Lifetime	5 years
Year	Discount Factor @20%	Cashflows	PV(in Billions)
1	0.83	1.6	1.33
2	0.69	1.6	1.11
3	0.58	1.6	0.93
4	0.48	1.6	0.77
5	0.40	1.6	0.64
Present Value of Annual Cashflows			4.78
Initial Cost in MNT			7.5	MNT
PV of salvage Value fpr Break-even should be			2.72	MNT
Actual Salvage Value	=2.72/.4		6.8	MNT
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