Foreign direct investment project, Financial Econometrics

Assignment Help:

The new investment has been under consideration since the beginning of January 2008 when the new government of Gujistan first invited companies to submit their proposals to build and run a large power station in the country. The invitation to tender stipulated that the project would be for an initial period of 10 years, and then subject to a satisfactory review by the Office of the Independent energy regulator (similar to OFGEN in the UK) for an indefinite period of time.

Coincidently, PASE plc policy is to appraise investment projects over a 10 year period, and then to assume that the after-tax sterling operating cash flows will grow at a constant rate of 5 percent per annum indefinitely. . The company had spent £1 million in the preparation of its own submission.

The following details were prepared in 2009 and the first year of operation and construction is 2010.  The company's policy is for surplus cash flows to be remitted to the UK at the end of each year. The project-team at PASE plc which prepared the initial bid for the project estimated that the total cost of the project will amount to G$900 million in plant and other equipment. The project will take two years to construct, with 65 percent of the project cost incurred in the first year of construction. In addition to the total project cost, an additional investment of G$75 million in 2010 would be required for working capital. Funding for the project will come from the UK. The policy of Gujistan's government is to allow investment in plant and equipment for this type of projects to be depreciated for tax purposes at the rate of 50 percent in the first year of operation, and subsequently on a reducing balance basis at 5 percent per annum.

As a result of the recent price instability in the world-wide energy markets, the project-team has felt it necessary to revise their estimates of the operating profits of the project, before depreciation and taxes in Gujistan dollars (G$) as follows:

G$ million

Year 1 30

Year 2 200

Year 3 250

Year 4 300

Year 5 330

Year 6 350

Year 7 - 10 380

The above estimates are now in real terms.


Related Discussions:- Foreign direct investment project

Microeconomics, appraise the Baumol''s sales revenue maximization theory as...

appraise the Baumol''s sales revenue maximization theory as an alternative objective of the firm o

Exchange and inflation rates, The Gujistan dollar until January 1st 2009 wa...

The Gujistan dollar until January 1st 2009 was pegged to the USA dollar. As at 31st December 2008, the official spot rate between the two currencies was G$0.6147 = US$1, while the

Calculate dr''s quick ratio, Q. Calculate DR's quick ratio? DR has the ...

Q. Calculate DR's quick ratio? DR has the following balances under current assets and current liabilities: Current assets $ Current liabilities

Calculate ads working capital cycle, Q. Calculate ADs working capital cycle...

Q. Calculate ADs working capital cycle? AD, a manufacturing entity, has the following balances at 30 April 2005: Extract from financial statements:      $000 Trade receiv

investors could expect to earn 8 percent, A new capital investment that wi...

A new capital investment that will cost $2.5 million and will generate perpetual net cash flows of $400,000 a year. Investors could expect to earn 8 percent elsewhere while taking

Analyze the asset price channels, Problem 1: (a) Analyze the asset pri...

Problem 1: (a) Analyze the asset price channels other than the traditional interest rate channel. (b) Analyze Bank lending channel and discuss its importance for the Mau

Calculate correlation coefficient, Question The variance of Stock A is ...

Question The variance of Stock A is .004, the variance of the market is .007 and the covariance between the two is .0026. What is the correlation coefficient?

Calculate the average return, The  expected  return  and  risk  involved  i...

The  expected  return  and  risk  involved  in  making  an  investment  are important  factors  considered  by  investors.  The  expected  return  of  a business can be influenced

Marketing pricing, Could you please explain me how to determine the marketi...

Could you please explain me how to determine the marketing pricing of a industril products? For explam a component in air conditioning. No standard parts in marketing.

Write Your Message!

Captcha
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