Case Study: Centralia Corporation A US manufacturer of small kitchen electrical appliances currently sells microwaves in Spain through an affiliate. Project: To build a manufacturing facility in Zaragoza, Spain Cost of plant is 5,500,000 ( C) Creates a borrowing capacity $2,904,000; New plant will be depreciated over 8 years; Centralia will get a special financing deal: 4,000,000 at 5% per year; Normal borrowing rate is 8% in dollars and 7% in ; Principal to be repaid in eight equal installments; Sales to EU forecast at 25,000 units in the first year and expect to increase by 12% per year Sales price is 200/ unit and production cost is 160/ unit in the 1st year Both are expected to increase with inflation. Madrid sales affiliate accumulated a net amount of 750,000 from its operations, which can be used to partially finance construction cost (this is an example of RF); The accumulated funds (6750,000) were earned under special tax concessions and taxed at a marginal rate of 20%. Expected inflation: 2.1% in Spain; 3% in the U.S The current exchange rate: $1.32/. Marginal tax rate in Spain and the U.S.: 35% Dollar all-equity cost of capital: 12% Should Centralia take the project? PV of the after-tax operating cash flows (Exhibit 18.2) PV of the depreciation tax shields (Exhibit 18.3) PV of the concessionary loan payments (Exhibit 18.4) PV of interest tax shields (Exhibit 18.6) Active Learning Task Description - Refer to Centralia case and Create an Excel spreadsheet to demonstrate the calculation of each APV component (as illustrated by the tables in book chapter 18 and in topic lecture note). - Note: submission will be graded on the equations used for APV calculations.; copy-paste of note numbers will not receive any credit