Reference no: EM133184230

Consider the following project (Establishing a subsidiary in {your country} by a US Corporation.

1. Initial investment is 200 million {your currency}
2. The project is expected to last 5 years. The salvage value of the plant is expected to be 50 million {your currency}
3. Prices, Demand, and Variable costs:

Year                 Price {your currency}  Demand (units)           VC/unit {your currency}

1                      300                              600,000                       180

2                      310                              700,000                       190

3                      320                              800,000                       200

4                      320                              800,000                       210

5                      300                              500,000                       210

1. Fixed costs in {your currency} are expected to be 20 million / year
2. The Spot exchange rate is {your spot today}
3. {your currency} is expected to behave as follows:
   1. Year 1: Loss of 5%
   2. Year 2: Additional loss of 5%
   3. Year 3: Same as year 2
   4. Year 4: Gain of 5%
   5. Year 5: Same as year 4
4. Your company expects the NWC requirements as follows:
   1. Initial NWC Investment of 50 million {your Currency}
   2. Annual NWC Requirements = 0 million {your currency}
5. Your country will impose a 25% tax on income and 10% tax on remitted funds
6. There are no USA taxes
7. All Cash flows will be sent to the USA parent at the end of the year
8. Depreciation expense is 10 year, straight line
9. The Required Rate of return on this project is 15%

Your job: 

1. Calculate NPV and IRR for this project
2. Decide if this project should be undertaken
3. Fully justify your answer