As a result of their analysis in the previous question, Bonilla Inc. wishes to explore the implications of being able to grow sales volume by $4\%$ per year. Argentine

inflation is expected to average $5\%$ per year, so sales price and material cost increases of $7\%$ and $6\%$ per year, respectively, are thought reasonable. Although material

costs in Argentina are expected to rise, US$-$based costs are not expected to change over the five year period. Evaluate this scenario for both the project and parent

viewpoints. Is the project under this revenue growth scenario acceptable?

The capital budgeting analysis needs to be performed on both the Project Level $($Project Viewpoint$)$ and the Parent Level $($Parent Viewpoint$).$

Project Cash Flows in Argentina: Project Viewpoint Annual units sold $($sets$)$ Sales price in Argentina per set

Sales revenue

Less material costs in Argentina

Less cost of US components @ $$10/$set

Gross profit

Less depreciation $(5$ year, straight line$)$

Pre$-$tax profit

Less $40\%$ Argentine taxes

$40\%$

Net income

Add back depreciation

Annual project cash flow

Return of net working capital

Initial investment, total

Free cash flow for discounting

Internal rate of return $($IRR$)$

Net present value $($NPV$)$