Question

Stein Inc. is planning to establish a subsidiary in Australia to manufacture and sell cars locally....

Stein Inc. is planning to establish a subsidiary in Australia to manufacture and sell cars locally. It will need an initial investment of 8 million U.S. dollars (US$) to set up the manufacturing facility. The project will end in 3 years and then the parent company will be paid A$8 million for transferring ownership of the Australian subsidiary to the Australian government. The payment from the Australian government is net of tax and is not subject to the withholding tax. After paying for income and withholding taxes, the subsidiary is expected to remit A$8 million, A$9 million, and A$10 million at the end of year 1, 2, and 3, respectively. Stein Inc. assumes that the future spot rate of the Australian dollar will stay the same at $0.95 over the next three years. The company decides to hedge 60% of the remitted net cash flows (excluding the salvage value) using forward contracts at the rate of US$0.91/A$ for the next three years. If the company’s required rate of return is 10%, what is the NPV in US$ of this project? You can assume that the U.S. government does not charge tax for the A$ income.

a. US$12,579,324

b. US$18,226,687

c. US$12,667,168

d. US$18,289,316

*URGENT!

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1


0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
URGENT** Jabreakit Inc. is a dairy manufacturer in the United States and currently exports US$2 million...
URGENT** Jabreakit Inc. is a dairy manufacturer in the United States and currently exports US$2 million worth of dairy products to Australia every year. Jabreakit Inc. is planning to establish a subsidiary in Australia which will have a lower production cost and the products will be sold directly in Australia. For this reason, Jabreakit Inc. will need to shut down its export business and the production lines in the United States. The Australian subsidiary is expected to remit US$3.5 million...
Trident Solar Technologies (TST) is the wholly-owned Taiwanese subsidiary of United Renewable Energy (URE) Inc., a...
Trident Solar Technologies (TST) is the wholly-owned Taiwanese subsidiary of United Renewable Energy (URE) Inc., a U.S. firm. Last year, TST had $2,000,000 of taxable income and paid 50% of the after-tax income to URE in dividends. The corporate tax rate in Taiwan was 25%, and the and the foreign withholding tax rate on dividends was 10%. The corporate tax rate for the parent company in the U.S. was 30%. What were the total taxes paid by TST, the Taiwanese...
Assume that Blue Spruce Inc. decided to sell DemandTV Ltd., a subsidiary, on September 30, 2017....
Assume that Blue Spruce Inc. decided to sell DemandTV Ltd., a subsidiary, on September 30, 2017. There is a formal plan to dispose of the business component, and the sale qualifies for discontinued operations treatment. Pertinent data on the operations of the TV subsidiary are as follows: loss from operations from beginning of year to September 30, $2.1 million (net of tax); loss from operations from September 30 to end of 2017, $800,000 (net of tax); estimated loss on sale...
(Country Risk and Capital Investment) Blueberry Farm Inc. (U.S. firm) is planning a project in Japan....
(Country Risk and Capital Investment) Blueberry Farm Inc. (U.S. firm) is planning a project in Japan. The project would end in one year, when all earnings would be remitted to Blueberry. Assume that no additional corporate taxes are incurred beyond those imposed by the Japanese government. Since Blueberry would rent space, it would not have any long-term assets in Japan, and expects the salvage (terminal) value of the project to be about zero. Assume that the project’s required rate of...
The managers of PonchoParts, Inc. plan to manufacture engine blocks for classic cars from the 1960s...
The managers of PonchoParts, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. They expect to sell 250 blocks annually for the next five years. The necessary foundry and machining equipment will cost a total of $800,000 and belongs in a 30% CCA class for tax purposes. The firm expects to be able to dispose of the manufacturing equipment for $150,000 at the end of the project. Labour and materials cost a total of $500 per...
Arnold Inc. is considering a proposal to manufacture​ high-end protein bars used as food supplements by...
Arnold Inc. is considering a proposal to manufacture​ high-end protein bars used as food supplements by body builders. The project requires use of an existing​ warehouse, which the firm acquired three years ago for $ 4 million and which it currently rents out for $ 134,000. Rental rates are not expected to change going forward. In addition to using the​ warehouse, the project requires an upfront investment into machines and other equipment of $ 1.5 million. This investment can be...
RET Inc. currently has one product, low-priced stoves. RET Inc.  has decided to sell a new line...
RET Inc. currently has one product, low-priced stoves. RET Inc.  has decided to sell a new line of medium-priced stoves. Sales revenues for the new line of stoves are estimated at $50 million a year. Variable costs are 60% of sales.  The project is expected to last 10 years. Also, non-variable costs are $10,000,000 per year. The company has spent $4,000,000 in research and a marketing study that determined the company will lose (cannibalization) $10 million in sales a year of its...
Klimewsky, Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only...
Klimewsky, Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Klimewsky would like you to value this target and has provided you with the following information: •             Klimewsky expects to keep the target for three years, at which time it expects to sell the firm for 500 million Malaysian ringgit (MYR) after deducting the amount for any taxes paid. •             Klimewsky expects a strong Malaysian economy. Consequently, the...
Klimewsky, Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only...
Klimewsky, Inc., a U.S.-based MNC, has screened several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Klimewsky would like you to value this target and has provided you with the following information: •             Klimewsky expects to keep the target for three years, at which time it expects to sell the firm for 500 million Malaysian ringgit (MYR) after deducting the amount for any taxes paid. •             Klimewsky expects a strong Malaysian economy. Consequently, the...
RET Inc. currently has one product, low-priced stoves. RET Inc. has decided to sell a new...
RET Inc. currently has one product, low-priced stoves. RET Inc. has decided to sell a new line of medium-priced stoves. Sales revenues for the new line of stoves are estimated at $20 million a year. Variable costs are 80% of sales. The project is expected to last 10 years. Also, non-variable costs are $2,000,000 per year. The company has spent $3,000,000 in research and a marketing study that determined the company will lose (cannibalization) $4 million in sales a year...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT