5) (6 pts) Electronus is a US MNC that is considering establishing a subsidiary in Thailand that would manufacture and sell specialty computer parts locally. Calculate the NPV from Electronus perspective. Relevant cash flows are given below: -The project would require a manufacturing facility (plant), equipment and working capital that are expected to cost 50 million Thai Bhat (THB). - The project is expected to last for 3 years and generate operating cash flows of 16 million THB per year after all taxes imposed by the Thai government. -At the end of 3 years, the Thai government has promised to purchase the plant from the Electronus for 25 million THB. -The spot exchange rate is $0.038/1THB and the expected exchange rate over the next three years is: Year 3 $0.035 Year 0 Year 1 Year 2 $0.038 $0.037 $0.036 -The subsidiary plans to send all net cash flows back to the parent firm at the end of each year. -The required rate of return for this project is 11%. Yr 1 Yr 2 Yr 0 -50 million THB Yr 3 witiallovestment OCF produced By the Subsidiary 16 mil THB 16 mil THB 16 mil THB S$ Salvage value 25 mil THB US$ dollars paid/received By Elestrenys NPV = 6) (5 pts) In some cases a host country may block funds that the subsidiary attempts to send back to the parent. If in problem 5, the Thai government requires the subsidiary to reinvest any cash flows from the project into Singapore Government bonds (currently yielding 7% interest per year) during year 1 and year 2 and only remit funds back to the parent at the end of year 3. Calculate the NPV of the project under the original FX rate assumptions as follows: Assume the required rate of return for this project is 11% Year o $0.038 Year 1 $0.037 Year 2 $0.036 Year 3 $0.035 FX rate: Yr 0 . Yr 1 Yr 2 Yr3 Initial Investment -50 million THB OCF produced By the Subsidiary 16 mil THB 16 mil THB 16 mil THB 25 mil THB S$ Salvage value a) NPV under blocked funds = 7) (5 pts) Refer to Problems 5 and 6 and consider the effects of the blocked funds on the NPV. Describe the two most important factors driving the results of the effect on NPV assuming a blocked funds scenario 8) (4 pts) Suppose that in problem 5, the Thai Bhat unexpectedly strengthens against the US dollar over the next three years as follows: Year 0 Year 1 Year 2 Year 3 $0.038 $0.039 $0.040 $0.041 Briefly describe whether the strengthening Thai Bhat will have a positive effect on NPV or an adverse effect on the NPV of the project as evaluated in problem 5? (You don't have to recalculate NPV unless you want to)