A. Natural Mosaic.

Natural Mosaic Company (U.S.) is considering investing Rupees 50,000,000 in India to create a wholly owned tile manufacturing plant to export to the US market. After five years, the subsidiary would be sold to Indian investors for Rs100,000,000. A pro forma income statement for the Indian operation predicts the generation of Rs7,000,000 of annual cash flow, is listed in the following table.

Sales revenue	30,000,000
Less cash operation expenses	(17,000,000)
Gross income	13,000,000
Less depreciation expenses	(1,000,000)
Earnings before interest and taxes	12,000,000
Less Indian taxes at 50%	(6,000,000)
Net income	6,000,000
Add back depreciation	1,000,000
Annual cash flow	7,000,000

The initial investment will be made on December 31, 2011, and cash flows will occur on December 31^st of each succeeding year. Annual cash dividends to Philadelphia Composite from India will equal 75% of accounting income.

The U.S. corporate tax rate is 40% and the Indian corporate tax rate is 50%. Because the Indian tax rate is greater than the U.S. tax rate, annual dividends paid to Natural Mosaic will not be subject to additional taxes in the United States. There are no capital gains taxes on the final sale. Natural Mosaic uses a weighted average cost of capital of 14% on domestic investments, but will add six percentage points for the Indian investment because of perceived greater risk. Natural Mosaic forecasts the rupee/dollar exchange rate for December 31^st on the next six years are listed below.

	R$/$		R$/$
2111	50	2014	62
2012	54	2015	66
2013	58	2016	70

What is the net present value and internal rate of return on this investment?