The mexican economy will weaken substantially

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Reference no: EM132053567

You are considering investing in a project in Mexico. The project will be a 2 year project, has an initial cost of 100K USD, and expected after tax profit of 1 million MXP per year. You expect the MXP to be valued at 0.12 USD/MXP. There are two major risks that you think have the potential to significantly affect project performance, which you assume are independent: * You think with probability of 0.2 that the MXP will depreciate to 0.1 USD/MXP. * You also think that with probability of 0.27 the Mexican economy will weaken substantially, in which case the project's after tax annual cash flow will be only 600K MXP. Your required return on the project is 18%. What is the expected value of the NPV of this project, as measured in USD?

Reference no: EM132053567

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