New Orleans Exporting Co. produces small computer components, which it then sells in Mexico. The firm plans to expand by establishing a plant in Mexico that will produce the components and sell them locally. This plant will reduce the amount of goods that are transported from New Orleans. The firm has determined that the cash flows to be earned in Mexico would yield a positive net present value after accounting for tax and exchange rate effects, converting cash flows to dollars, and discounting them at the proper discount rate. What other major factor must be considered to estimate the project’s NPV?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 14, Problem 3ST
Textbook Problem

New Orleans Exporting Co. produces small computer components, which it then sells in Mexico. The firm plans to expand by establishing a plant in Mexico that will produce the components and sell them locally. This plant will reduce the amount of goods that are transported from New Orleans. The firm has determined that the cash flows to be earned in Mexico would yield a positive net present value after accounting for tax and exchange rate effects, converting cash flows to dollars, and discounting them at the proper discount rate. What other major factor must be considered to estimate the project’s NPV?

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