Determine the net present value of the foreign investment

Assignment Help Managerial Accounting

Reference no: EM133506726

International Accounting

Details:
Bob's Barbeques is an Australian company that has been growing steadily over the past 5 years. The company has been sourcing parts and materials from overseas but is now considering establishing a sustainable operation in Malaysia to manufacture the parts and materials that they use frequently.

The Malaysian operation would rely on solar power, and recycling water and waste would be integral to the operation. The company notes that these sustainable initiatives are typically more costly, however the company is keen to improve their performance in this area.

The estimates of the cash flows related to the proposed investment in sustainable manufacturing in Malaysia are as follows (in Australian dollars):

	AUD
Initial cost of sustainable investment now	800,000
After tax net cash flow year 1	300,000
After tax net cash flow year 2	300,000
After tax net cash flow year 3	200,000
After tax net cash flow year 4	200,000
After tax net cash flow year 5	120,000

The required rate of return from capital investments for Bob's Barbeques is 15% p.a. and the investment is estimated to have a salvage value of zero at the end of the 5th year.

Exchange rates between the Australian Dollar (AUD) and Malaysian Ringgit (MYR) are forecasted as follows over the life of the investment:

Now	AUD 1.00 = MYR 3.13
Year 1	AUD 1.00 = MYR 3.20
Year 2	AUD 1.00 = MYR 3.10
Year 3	AUD 1.00 = MYR 3.08
Year 4	AUD 1.00 = MYR 3.05
Year 5	AUD 1.00 = MYR 3.00

Required:

Question 1: Determine the net present value (NPV) of the foreign investment from the project perspective. Show all workings and calculations.

Question 2: Determine the net present value (NPV) of the foreign investment from the parent company perspective. Show all workings and calculations.

Question 3: Should Bob's Barbeques proceed with this foreign investment? Explain why or why not. (Maximum 100 words)

Question 4: Identify and explain two risks that are associated with this foreign capital investment. Provide specific discussion for this investment for Bob's Barbeques, not general discussion about foreign capital investment. (Maximum 400 words)

Reference no: EM133506726

Questions Cloud

What was one thing you really enjoyed about this course : What was one thing you really enjoyed about this course and one thing you would change. What will be your biggest take-away from this course?

What were the primary causes of mattel recall problems : What were the primary causes of Mattel's recall problems? - What should Mattel do now? What are the implications? - How can Mattel better manage accountability

Developing comprehensive promotional strategy : Consider ways that you can improve your understanding of the concepts and elements related to developing a comprehensive promotional strategy.

New type of soft drink from frackly : A new type of soft drink from Frackly Inc. is sold in 500 milliliter (ml) bottles. The mean volume of drink placed in a bottle is 495 ml with standard deviation

Determine the net present value of the foreign investment : GMBA6002 International Accounting, University of Newcastle - Determine the net present value (NPV) of the foreign investment from the project perspective

How would you seek feedback to help you minimise variations : From whom would you seek feedback and how would you seek feedback to help you minimise variations between expected and actual work outputs?

What are the process of purposeful asmpling : what is purposeful sampling? - What are the process of purposeful asmpling?

What are multilevel cultural challenges facing our society : What is it currently being referred to as and why? According to the textbook, what are the 4 multilevel cultural challenges facing our society?

What are ampol competitive advantages : What are Ampol's competitive advantages? How to use VRIO and Porter's 5 Forces analysis to decide the outcome of Ampol's competitive advantages?

User Account

All Pages