Techno PLC., a British electronic manufacturer, is planning to setup a manufacturing plant in India. You, the Financial Manager at Techno, have estimated that the construction cost will be 100 million Indian Rupees. The CEO of the company tells you that he plans to have the plant running for only 5 years and at the end of year 5, he intends to sell the plant. You have worked out that Techno will be able to sell the plant for 30 million Indian Rupees. Further, you have also estimated that the operating cash flows generated from the plant will be 30 million Indian Rupees in the first 3 years, followed by 10 million Indian Rupees in the last 2 years. All operating cash flows begin one year from today and are remitted back to the parent at the end of each year. Techno's required rate of return is 12%.
i) if it takes 93 Indian Rupees to buy one £, what is the net present value of the project if the Indian Rupee is expected to depreciate by 5% per year. Ignoring taxes, should Techno choose the project?
ii) If the value of the Indian Rupee does not change over the course of 5 years, should Techno invest in the project?