Calculate the net present value, Corporate Finance

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Here is the pro-forma income statement for Semen Indonesia, an overseas venture that Cemex is planning to invest in.

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 In this exercise, you will need to evaluate the investment decision from the project point of view.  Some assumptions you may need are:

 ·  Initial Capital Expenditure (investment) = 25,000,000 million Rupiah

·   Net Working Capital requirement: 10% of the expected sales for each year, allocated in the beginning of the year.

·   Terminal Value at Year 5:  22,000,000 million Rupiah

·   Indonesian Corporate Income Taxes:  30%

·   Mexican Corporate  Income Taxes:  35%

·   Capital Structure: 50% debt, and 50% equity

·   Risk-free Rate in Indonesia:  30%

·   Risk-free Rate in the U.S.:  5%

·   Market Risk Premium in Indonesia:  10%

·   Market Risk Premium in the U.S.:  7%

·   Cost of debt used to finance the project:  38%

·   Cemex's beta in the U.S. market: 1.0%

·   Weighted average of the betas of the cement companies in Indonesia:  1.2

a)     Please prepare the cash flow statement for the project (project point of view)

b)     What the discount rate you would use to discount these cash flows (project point of view)?

c)      Please calculate the Net Present Value (NPV) of this international investment for the project point of view.

 


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