New Orleans Exporting Co. produces small computer components, which are then sold to Mexico. It plans to expand by establishing a plant in Mexico that will produce the components and sell them locally. This plant will reduce the amount of goods that are transported from New Orleans. The firm has determined that the cash flows to be earned in Mexico would yield a positive net present value after accounting for tax and exchange rate effects, converting cash flows to dollars, and discounting them at the proper discount rate. What other major factor must be considered to estimate the project’s NPV?
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