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QUESTION
Your firm is considering an expansion project in Brazil that will result in annual operating cash flows of BRL 35 million for 10 years. The initial...
Your firm is considering an expansion project in Brazil that will result in annual operating cash flows of BRL 35 million for 10 years. The initial cost of the project is USD 60 million. The project has no expected Salvage Value. Your company plans to fund the project with a combination of three sources of funding. Particulars follow:
- A loan from a Brazilian bank in the amount of BRL 100 million will obtained
- The loan will be retired by retaining BRL 20 million from the after-tax cash flows of the subsidiary in each of the 10 years
- The remainder will be funded by an equal proportion of US sourced debt and equity
- The S&P 500 is currently yielding 10%; Treasury Bills are currently yielding 2.5% and your firm's Beta is 1.2
- Your firm's bonds have an after-tax Yield to Maturity of 5.5%
- The current and expected exchange rate is BRL 3.5 / USD
IN USD - WHAT IS THE EXPECTED NPV OF THIS PROPOSED PROJECT?
