Finisterra, S.A. Finisterra, S.A., located in the state of Baja California, Mexico, manufactures frozen Mexican food, which enjoys a large following in the U.S.

states of California and Arizona to the north. In order to be closer to its U.S. market, Finisterra is considering moving some of its manufacturing operations to southern California. Operations in California would begin in year 1 and have the following attributes.

The operations in California will pay 80% of their accounting profit to Finisterra as an annual cash dividend. Mexican taxes are calculated on grossedup dividends from foreign countries, with a credit for host-country taxes already paid. What is the maximum U.S. dollar price Finisterra should offer in year 1 for the investment?

Transcribed Image Text:

Assumptions Sales price per unit, year 1 (US$) Value $5.00 Sales price increase, per year 3.00% Initial sales volume, year 1, units 1,000,000 Sales volume increase, per year 10.00% Production costs per unit, year 1 Production cost per unit increase, per year $4.00 4.00% General and administrative expenses, per year Depreciation expenses, per year $100,000 $ 80,000 Finisterra's WACC (pesos) 16.00%