SUGGESTED ANSWERS TO INTERNATIONAL MACHINE CORPORATION
1. Should IMC make this investment?
2. What is IMC’s required rate of return for this project?
3. What factors and assumptions are critical to your project analysis?
ANSWER. Subsidiary peso operating cash flows are calculated in Exhibit 1. The 32% annual increase in
sales revenue and variable costs results from the combination of a 10% increase in unit sales and a 20% rate
of Mexican inflation (1.1 x 1.2 = 1.32). The 10% annual increase in the dollar costs of imported items is