Deli-Delights Inc. Deli-Delights Inc. is a U.S. company that is considering expanding its operations into Japan. The company supplies processed foods to storefront delicatessens in large cities. This requires Deli- Delights to have a centralized production and warehousing facility in each of these cities. Deli-Delights has located a possible site for a Japanese subsidiary in Tokyo. The cost to purchase and equip the facility is ¥765,000,000. Perform an ANPV analysis to determine whether this is a good investment, under the following assumptions:

a. The average per-unit sales price will initially be ¥410.

b. First-year sales will be 15 million units, and physical sales will then grow at 10% per annum for the next 3 years, 5% per annum for the 3 years after that, and then stabilize at 3% per annum for the indefinite future.

c. First-year variable costs of production will be ¥225 per unit of labor and $1.75 per unit of imported semi-finished goods. Administrative costs will be ¥300 million.

d. Depreciation will be taken on a straight-line basis over 20 years.

e. Retail prices, labor costs, and administrative expenses are expected to rise at the Japanese yen rate of inflation, which is forecast to be 1%. Dollar prices of semi-finished goods are expected to rise at the U.S. dollar rate of inflation, which is expected to be 4%.

f. The yen/dollar exchange rate is currently ¥85/$, and the yen is expected to appreciate at a rate justified by the expected inflation differential between the yen and dollar rates of inflation.

g. There will be a 4% royalty paid by the Japanese subsidiary to its U.S. parent.

h. The Japanese corporate income tax rate is 37.5%, and there is a 10% withholding tax on dividends and royalty payments.

i. The yen-denominated equity discount rate for the project is 13%.

j. Net working capital will average 6% of total sales revenue.

k. Capital expenditures will offset depreciation.

l. All of the Japanese subsidiary’s free cash flow will be paid to the parent as dividends.

m. The corporate income tax rate for the United States is 34%.

n. Deli-Delights Inc. has sufficient other foreign income that will allow it to fully utilize any excess foreign tax credits generated by its Japanese subsidiary.

o. Deli-Delights Inc. does not plan to issue any debt associated with this project.