Question
ASAP HELP NEEDED!!!! EXPLAIN STEP BY STEP !! DETAILED PLEASE ________________________________________________ Finisterra, S.A., located in the state of Baja California, Mexico, manufactures frozen Mexican food,
ASAP HELP NEEDED!!!! EXPLAIN STEP BY STEP !! DETAILED PLEASE
________________________________________________
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?
Assumptions Sales price per unit, year 1 (US$) Sales price increase, per year Initial sales volume, year 1, units Sales volume increase, per year Production costs per unit, year 1 Production cost per unit increase, per year General and administrative expenses, per year Depreciation expenses, per year Finisterra's WACC (pesos) Value $5.00 3.00% 1,000,000 10.00% $ 4.00 4.00% $100,000 $ 80,000 16.00% Assumptions Terminal value discount rate Spot exchange rate (Ps/$) Year 0 Spot exchange rate (Ps/$) Year 1 Spot exchange rate (Ps/$) Year 2 Spot exchange rate (Ps/$) Year 3 Value 20.00% 8.00 9.00 10.00 11.00Step by Step Solution
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