Problem:
A U.S. company is considering a project in Mexico. Estimated cash flows are 10 million Mexican pesos the first year and $20 million Mexican pesos the second year. The U.S. company would incur a cost of $2 million at the start of the project, and its cost of capital is 12%. The expected spot rate is $0.13 for Year 1 and $0.11 for Year 2.
(1) Calculate the net present value of this project . Show how you derive the answer; and (2) Should the U.S. company invest in the project? Why or why not?