Question

1. Norttene technologies is a European subsidiary from an American group, it produces plastic for the automotive industry. Please complete the income statement and then calculate the present value of the firm after the devaluation.

- Exchange rate initial = 1.25 $/Euro.

- After devaluation = 1.15 $/Euro

- Period for calculation 5 years.

- Debt 300,000 Euros. Interest debt = 10%. (Loan repayment in 5 years).

- Tax rate on corporate profit 25%.

- Discount rate = 10%

Income Statement

	Euros
Domestic Sales	150,000.00
Export Sales	60,000.00
Total Revenue
Total Operating Expenditures	75,000.00
Other expenses	20,000.00
Interest in Debt (10%)
Depreciation	40,000.00
Net Profit Before tax
Income Tax (25%)
Profit after tax
Add back depreciation
Net Cash Flow in Euro
Net cash Flow in US$

PV of Economic Loss after devaluation in $

Year	Postdevaluation CF	Predevaluation CF	Change in CF	10% PV	PV
1
2
3
4
5
TOTAL

Answer 1