Pepsi-Cola is planning on opening a subsidiary in India. The subsidiary will cost Rupees 1 billion; working capital needs of the subsidiary include an increase in inventories of Rupees 200 million, and increase in accounts payables to the tune of Rs. 300 million. The revenues from the subsidiary are estimated to be Rupees 800 million per year over a 5-year economic life. Depreciation expense after accounting for the savage value of Rs. 200 million will be Rupees 160 million/year. Total costs (fixed and variable costs together) will be Rupees 250 million/year. The plant will have a salvage value of Rupees 200 million (net of taxes) in the terminal year. Indian government imposes a 30% tax on earnings. 100% of the cash flows will be remitted to the parent. However, there will be a 10% withholding tax by the Indian Govt. Pepsi-Cola requires 16% return on new investments of this kind in developing countries. The exchange rate is expected to be stable at Rupees 66/$.
a) Calculate the net investment cost (US $) of the subsidiary.
b) Calculate after-tax cash flows in US $ for years 1 through 5
c) Calculate the Net Present Value (NPV) of the project.
d) Calculate the IRR of the project
e) Should the project be accepted or rejected?
f) Now, recalculate the NPV & decide whether the project should be accepted or rejected under the following scenarios:
i) Strong Rupee: Rs. 60/ US $
ii) Weak Rupee: Rs. 70/ US $
Answers: 3
Business, 22.06.2019 17:50, pickles3233
The management of a supermarket wants to adopt a new promotional policy of giving a free gift to every customer who spends > a certain amount per visit at this supermarket. the expectation of the management is that after this promotional policy is advertised, the expenditures for all customers at this supermarket will be normally distributed with a mean of $95 and a standard deviation of $20. if the management wants to give free gifts to at most 10% of the customers, what should the amount be above which a customer would receive a free gift?
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Business, 23.06.2019 07:40, hjamileth77
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Pepsi-Cola is planning on opening a subsidiary in India. The subsidiary will cost Rupees 1 billion;...
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