Reference no: EM13122584
A US multinational is contemplating a production facility in the UK. The production will be sold locally in the UK. The cost of the facility is estimated at $100,000,000 USD. 100% of the project will be financed through parent equity. The US corporate tax is 35%. Here is other pertinent information on the project:
Year
1 2 3 4
1.Price per unit GBP 1,500 1550 1,600 1,800
2. Unit sales 50,000 180,000 360,000 500,000
3. Variable costs/Unit GBP 1,000 1,200 1,300 1,500
4. Fixed expenses GBP 100,000,000 70,000,000 60,000,000 80,000,000
5. Noncash expenses GBP (included in total fixed expenses, #4 above) 50,000,000 50,000,000 50,000,000 50,000,000
6. British tax rate 35% 35% 40% 40%
7. Withholding tax rate 10% 10% 10% 10%
8. Profit remittance % 10% 50% 75% 100%
9. Exchange rate $/GBP 1.35 1.45 1.75 1.35
The required rate of return in 12%. Examine this project form the parent's perspective. Should the project be undertaken? Support your answer by detailed calculations.
1)British income taxes are calculated only if Earnings are positive( no loss carryback or carryforward);
2) Ignore terminal value.
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: A US multinational is contemplating a production facility in the UK. The production will be sold locally in the UK. The cost of the facility is estimated at $100,000,000 USD. 100% of the project will be financed through parent equity. The US corpo..
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