What issues beyond npv and irr did you consider

Assignment Help Corporate Finance
Reference no: EM131036104

Case - Multinational Capital Budgeting

ParentCo, a U.S. C-Corp, is considering a plant expansion in Guadalajara, Mexico by establishing a wholly owned subsidiary. The CEO of ParentCo has asked you to develop an analysis of whether or not the project should be approved. You and your team have obtained the following data with which to perform your analysis:

Exchange rate at time of investment

11 pesos/$

Cost of investment in $

$2,000

Expected inflation in Mexico

10%

Expected inflation in US

3%

Expected financing

$1,000 equity from ParentCo; $454.55 loan from ParentCo (5 year fully amort at 10%); remainder from a local Mexican lender, full amort over 8 years at 14%

ParentCo cost of capital components

MV debt = 7%; MV equity = 15%; tax rate = 35%; target equity = 60%

Mexico operation cost of capital components

MV equity = 24%; tax rate = 30%; target equity = 50%

Mexico operation terminal growth rate

3%

Sales volume

80 units in year 1, growing at 25% for each of the next 4 years; price fixed at

$6 per unit

Operating costs

59% of revenue in year 1; increasing each year by unit growth (no learning curve) and inflation

Fees paid to parent

2% of total Mexican revenue

Annual depreciation

Equal to 80% of project cost equal over a 10 year period

Cap X

Assume future annual cap x equals annual depreciation

Dividend payment to ParentCo

50% of Mexican positive net income

Tax due on payments to ParentCo

Dividends = 15%; Fees = 10%; Interest

= 10%; Terminal proceeds = 15%

Tax loss carryovers

Assume they are not allowed

Liquidity and marketability discount

Assume no discount is required

Project risk premium over ParentCo WACC

5%

NWC requirement for project

240 pesos in year 1, growing at 25% per year

Deliverable:

1) The Free Cash Flow for each year of the project.

2) The Terminal Value for the project in the terminal year (show calculation)

3) The NPV and IRR for the project

4) The NPV and IRR for the parent

5) Your recommendation of whether the project should be approved by the Parent. What issues beyond NPV and IRR did you consider important when making your decision.

Attachment:- Data.rar

Reference no: EM131036104

Questions Cloud

What is their role and importance in the central dogma : Provide a brief description of each molecule in question. What is their role and importance in the central dogma? List 3 primary data resources (Biological databases) for each molecule with their respective URLs.
Write an outline for your essay : Write an outline for your essay - Use one source from each of the following: website; newspaper or magazine article; academic journal article; and a book.
Discuss the organizational structure at cisco : Discuss the organizational structure at Cisco. In your view, what prompted Cisco to adopt such an organizational structure?
Dividend irrelevant theory in this case : To Shilpa Kotecha, please answer the question in previous assignment. The yield to maturity on LA debt currently is 6%. †LA has 10 million shares outstanding, with a market price of $10 a share. LA's equity beta is estimated at 1.25, the market ri..
What issues beyond npv and irr did you consider : The NPV and IRR for the parent, Your recommendation of whether the project should be approved by the Parent. What issues beyond NPV and IRR did you consider important when making your decision
Integrity issues that are raised in the jilted contractor : You are the Chief Procurement Officer for the City and have been asked to respond to the integrity issues that are raised in the Jilted Contractor document. In a 5-page to 8-page paper, respond to the issues raised in the Jilted Contractor documen..
Corporations-conventions and conference groups : A hotel manager has set a rack rate for all rooms in the hotel of $149 for next year. Corporations, conventions, and conference groups were advised that early next year the rack rate charged could be reduced to a lower rate of $99, andthe potentia..
Positive or negative in effects : 1. What major forces (changes) in the economy or elsewhere over the PAST 20 years have affected the U.S. economy the most? (Rank these forces from most to least important). List at least four major factors. They may be positive or negative in the..
Write a executive summary about the given book : I need ten pages of executive summary which is to read a book named The Success Principles: How to Get from Where You Are to Where You Want to Be by Jack Canfield and Janet Switzer is a motivational book.

Reviews

Write a Review

 

Corporate Finance Questions & Answers

  How much equity does trinas trikes have

Trina'sTrikes, Inc. reported a debt-to-equity ratio of 2 times at the end of 2013. If the firm's total debt at year-end was $10 million, how much equity does Trina's Trikes have?

  Design an incentive pay plan for a restaurant manager

Design an incentive pay plan for a restaurant manager whose goals are to serve 300 customers per day at an average price per customer of $6.88.

  Prepare a post closing trial balance

Prepare a post closing trial balance from given trail balance and adjustments - prepare a post closing trial balance

  Determine whether the firm should purchase the centrifuge

Assuming that Valley Proteins has a tax rate of 30 percent and that their opportunity cost of capital (required return) is 10 percent, determine whether the firm should purchase the centrifuge from Harburg-Freudenberger or the Bird Machine Co. cent..

  Calculate the firms expected rate of return using the

calculate the firms expected rate of return using the capital asset pricing model. you will first need to calculate

  1 when analyzing a companys performance what are some of

1. when analyzing a companys performance what are some of the problems of relying on ratio analysis only?2. how does

  What is the required return on the companys unlevered equity

What is the required return on the company's unlevered equity is 13 percent, and the new fleet will not change the risk of the company. The risk-free rate is 7 percent.

  Show the effect of the following transactions relating to

show the effect of the following transactions relating to whyme ltd on the accounting equation. note using the

  What is the economic order quantity for the company

What is the operating cycle of a business? How does it vary for different types of business? Why is it important for the management to review this cycle?

  Inventory decisions - free or unused capacity of freezer of

inventory decisions - free or unused capacity of freezer of ice cream.the sweet treat shop sells ice cream and frozen

  Should bob plan be approved using the pw and irr

Should Bob's plan be approved using the PW and IRR criteria using a 4-year analysis?

  Compute one forward rate curve based on the spot rate curve

Why do you think negative interest rates are being observed in the market. What recent events are making the interest rates to become negative - Calculate the z-spread for the bonds issued by Ford Motor Company available in the Excel Spreadsheet..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd