Reference no: EM132999512

Question - Superglow Inc. is a cosmetics company founded in early 2015 in Busan, South Korea. The company is considering building a wholly owned cosmetics manufacturing plant in Singapore. The plan aims to increase the company's customer base and expand its sales in Asia market. The new plant will cost Singapore Dollar (SG$) 500 billion to build. This initial investment will be made on December 31, 2021.

The new plant is expected to generate sales of 1.5 million units per year with sales price of SG$250,000 per unit. The operating and depreciation expenses per year are projected to be SG$210 billion and SG$100 billion, respectively. The first cash flow will occur on December 31, 2022. After five years the plant would be sold to Singapore government for SG$240 billion and there are no capital gains taxes on the final sale.

Both Singapore and South Korea corporate tax rate are 25%. Annual cash dividends to Superglow Inc. from Singapore will equal 60 percent of net income. This dividend will not be subject to additional taxes in South Korea. The weighted average cost of capital (WACC) of Superglow Inc. on its domestic investments is 16 percent. However, the company is willing to reduce the discount rate by 2 percentage points for this investment because of the higher certainty of the cash flows. The current SG$ to Korean won (KRW) exchange rate is SG$ 12.74/KRW. The Singapore dollar is expected to depreciate visa vis the Korean won at 8% per annum.

Required - Calculate the net present value and internal rate of return on this investment both from the project and parent views. What is your recommendation to the board of directors regarding the feasibility of the project?