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Babcock Company, a British company, is considering establishing an operation in the United States to assemble and distribute ovens. British Pounds ( BP ) U
Babcock Company, a British company, is considering establishing an
operation in the United States to assemble and distribute ovens.
British Pounds BP US Dollars USD
Initial investment estimate
Investment terminal value at the end of three years
Total aftertax annual cash flow:
Year
Year
Year
The US national legislature is considering a reduction in the corporate
income tax rate, resulting in Total aftertax annual cash flow:
Year
Year
Year
Probability of the tax rate reduction occurring
Discount rate in evaluating potential capital investments
Present value factors at are:
Period PV Factor
Distribution of US operation aftertax annual cash flow as dividend to Babcock at the end of each year.
Forecasted exchange rates: BP USD
Year
Year
Year
Required:
Project Perspective
TACF USD PV Factor Present Value
Year
Year
Year
Less: Initial investment
NPV in USD
Calculation of NPV in USD with possible tax rate change:
TACF USD PV Factor Present Value
Year
Year
Year
Less: Initial investment
NPV in USD
Calculation of Project Expected NPV in USD:
NPV Probability Expected NPV
without tax rate change
with tax rate change
Project expected NPV in USD
Parent Company Perspective
TACF BP PV Factor Present Value
Year
Year
Year include terminal value
Less: Initial investment
NPV in USD
Calculation of NPV in USD with possible tax rate change:
TACF USD PV Factor Present Value
Year
Year
Year include terminal value
Less: Initial investment
NPV in USD
Calculation of Project Expected NPV in USD:
NPV Probability Expected NPV
without tax rate change
with tax rate change
Project expected NPV in USD
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