Should m company establish the distribution center

Assignment Help Financial Management

Reference no: EM131177975

M Company is considering whether to establish a sale distribution center in China. Given the large Chinese consumer market, M company estimates that its net sales revenues will be 15 million yuans in the first year, 20 million yuans in the second year, and 35 million yuans in the third year. The current spot rate is 6 yuans per US dollar.

The project is assumed to have a beta of 1. The Chinese market risk premium is 10%, and U.S. market risk premium is 6%. The risk free rate is assumed to be 6%. M company’s initial investment outlay, consisting of plant and equipment, is estimated at 12 million yuans, and the plant and equipment will be depreciated on a straight-line basis over a three-year period, with salvage value of 2 million yuans. The corporation tax rate is 25% in China and 35% in the US.

Should M company establish the distribution center?

Reference no: EM131177975

Questions Cloud

Estimates the amount of money on deposit : A bank estimates the amount of money on a deposit will be 1 million times the percentage rate of interest. For instance, if they pay 3% they will generate 3 million in deposits. If they can load all teh money they tak in at 10% interest, what interes..

What is the accumulated depreciation at end end of year four : Equipment is purchased for $1,500,000 (no salvage value). The company uses straight line depreciation for 9 years. Assume no other fixed assets. What is the accumulated depreciation at end end of year 4?

What is cash conversion cycle : Primrose Corp has $17 million of sales, $2 million of inventories, $4 million of receivables, and $3 million of payables. Its cost of goods sold is 75% of sales, and it finances working capital with bank loans at an 6% rate. Assume 365 days in year f..

Their share are in proportion to their investments : John starts a business with $168000 as capital.Six months later, Andrew joins john with a capital of $144000. One month after that, Edward joins them with a capital of $324000. At the end of first year, the profit is $40000. How much do john, Andrew ..

Should m company establish the distribution center : M Company is considering whether to establish a sale distribution center in China. Given the large Chinese consumer market, M company estimates that its net sales revenues will be 15 million yuans in the first year, 20 million yuans in the second yea..

Implemented the lockbox system : Hardin-Gehr Corporation (HGC) began operations 5 years ago as a small firm serving customers in the Detroit area. However, its reputation and market area grew quickly. Today HGC has customers all over the United States. How much free cash would HGC g..

Major global crisis-office to start the insolvency process : There has been a major global crisis, and your company’s board of directors has announced that the company is going bankrupt. No one could have seen this one coming. Your CEO has called you in to his office to start the insolvency process. As your co..

Cost of common stock equity-growth rate of dividends : Ross Textiles wishes to measure its cost of common stock equity. The firms stock is currently selling for $57.50. The firm expects to pay a $3.40 dividend at the end of the year (2016). Determine the growth rate of dividends from 2011 to 2015. Determ..

Justification analysis using capital budgeting techniques : Assume that you have received a capital expenditure request for $52,000 for plant equipment and that you are required to do a justification analysis using capital budgeting techniques. The company’s cost of capital is 12% and the equipment (investmen..

User Account

All Pages