You are CEO of Acme, Inc. located in the United States. You use the discounted payback period method and accept all projects that payback in three years. You are considering a project that will cost $5,500,000 and will produce one cash flow that occurs in three years. However, the cash flow is in pesos since the project is an overseas project. The current indirect exchange rate is 13.5 pesos per dollar. The cash inflow in pesos is 100,000,000 in three years, and the discount rate is 11.5%. During this time, the anticipated annual inflation rate is 5% in the United States and 4% in Mexico.
Should you accept this project, using the discounted payback period method? Is this a good decision? Provide the six (6) steps you would utilize to determine whether or not this is a good decision.
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