DAK Plc. just constructed a manufacturing plant in India. The construction cost 9 billion Rupees. DAK Plc. intends to leave the plant open for three years. During the three years of operation, rupee cash flows are expected to be 3 billion, 3 billion, and 2 billion, 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, DAK Plc. expects to sell the plant for 5 billion rupees. DAK Plc. has a required rate of return of 17 percent. It currently takes 8,700 rupees to buy one U.S. dollar, and the rupee is expected to depreciate by 5 percent per year. a) Determine the NPV for this project. Should DAK Plc build the plant? b) How would your answer change if the value of the rupees was expected to remain unchanged from its current value of 8,700 rupees per U.S. dollar over the course of the three years? Should DAK Plc. construct the plant then?
DAK Plc. just constructed a manufacturing plant in India. The construction cost 9 billion Rupees. DAK Plc. intends to leave the plant open for three years. During the three years of operation, rupee cash flows are expected to be 3 billion, 3 billion, and 2 billion, 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, DAK Plc. expects to sell the plant for 5 billion rupees. DAK Plc. has a required
a) Determine the NPV for this project. Should DAK Plc build the plant?
b) How would your answer change if the value of the rupees was expected to remain unchanged from its current value of 8,700 rupees per U.S. dollar over the course of the three years? Should DAK Plc. construct the plant then?
Step by step
Solved in 3 steps
