Data table - n Assumptions Original investment (Czech korunas, CZK) Spot exchange rate (CZK/$) Unit demand 0 CZK250,000,000 1 2 3 31.00 Unit sales price Fixed cash operating expenses 28.50 700,000 $10.50 $1,000,000 26.50 800,000 $10.90 $1,040,000 23.50 1,100,000 $11.30 $1,090,000 Investment in working capital (CZK) CZK90,000,000 Print Done Wenceslas Refining Company. Privately owned Wenceslas Refining Company is considering investing in the Czech Republic so as to have a refinery source closer to its European customers. The original investment in Czech korunas would amount to CZK250 million, at the current spot rate of CZK31.00/$, all in fixed assets, which will be depreciated over 10 years by the straight-line method. An additional CZK90,000,000 will be needed for working capital. For capital budgeting purposes, Wenceslas assumes sale as a going concern at the end of the third year at a price, after all taxes, equal to the net book value of fixed assets alone (not including working capital). All free cash flow will be repatriated to the United States as soon as possible. In evaluating the venture, the U.S. dollar forecasts are shown in the popup table, Variable manufacturing costs are expected to be 55% of sales. No additional funds need be invested in the U.S. subsidiary during the period under consideration. The Czech Republic imposes no restrictions on repatriation of any funds of any sort. The Czech corporate tax rate is 25% and the United States rate is 38%. Both countries allow a tax credit for taxes paid in other countries. Wenceslas uses 19% as its weighted average cost of capital, and its objective is to maximize present value. a. Is the investment attractive to Wenceslas Refining from the project's viewpoint? b. Is the investment attractive to Wenceslas Refining from the parent's viewpoint? Project Viewpoint ($) Initial investment Unit sales price Unit demand Revenues Less costs of manufacturing Gross profit Year 0 Year 1 Year 2 Year 3 $ 10.50 $ 700,000 10.90 $ 800,000 11.30 1,100,000 $ 14.000 0001 140100001 14.000 0001 Wenceslas Refining Company. Privately owned Wenceslas Refining Company is considering investing in the Czech Republic so as to have a refinery source closer to its European customers. The original investment in Czech korunas would amount to CZK250 million, at the current spot rate of CZK31.00/$, all in fixed assets, which will be depreciated over 10 years by the straight-line method. An additional CZK90,000,000 will be needed for working capital. For capital budgeting purposes, Wenceslas assumes sale as a going concern at the end of the third year at a price, after all taxes, equal to the net book value of fixed assets alone (not including working capital). All free cash flow will be repatriated to the United States as soon as possible. In evaluating the venture, the U.S. dollar forecasts are shown in the popup table, Variable manufacturing costs are expected to be 55% of sales. No additional funds need be invested in the U.S. subsidiary during the period under consideration. The Czech Republic imposes no restrictions on repatriation of any funds of any sort. The Czech corporate tax rate is 25% and the United States rate is 38%. Both countries allow a tax credit for taxes paid in other countries. Wenceslas uses 19% as its weighted average cost of capital, and its objective is to maximize present value. a. Is the investment attractive to Wenceslas Refining from the project's viewpoint? b. Is the investment attractive to Wenceslas Refining from the parent's viewpoint? Gross profit Less fixed cash operating expenses Less depreciation Earnings before taxes Less Czech corporate income taxes (25%) Net income Add back depreciation $ (1,000,000) (1,040,000) (1,090,000) EA $ ||| Homework: Chapters 13 & 18 Homework Question 7, Problem 18-6 (algorithmic) Part 2 of 12 HW Score: 7.79%, 0.55 of 7 points Points: 0.05 of 1 Save Question list Question 1 Question 2 Question 3 K Wenceslas Refining Company. Privately owned Wenceslas Refining Company is considering investing in the Czech Republic so as to have a refinery source closer to its European customers. The original investment in Czech korunas would amount to CZK250 million, at the current spot rate of CZK31.00/$, all in fixed assets, which will be depreciated over 10 years by the straight-line method. An additional CZK90,000,000 will be needed for working capital. For capital budgeting purposes, Wenceslas assumes sale as a going concern at the end of the third year at a price, after all taxes, equal to the net book value of fixed assets alone (not including working capital). All free cash flow will be repatriated to the United States as soon as possible. In evaluating the venture, the U.S. dollar forecasts are shown in the popup table, Variable manufacturing costs are expected to be 55% of sales. No additional funds need be invested in the U.S. subsidiary during the period under consideration. The Czech Republic imposes no restrictions on repatriation of any funds of any sort. The Czech corporate tax rate is 25% and the United States rate is 38%. Both countries allow a tax credit for taxes paid in other countries. Wenceslas uses 19% as its weighted average cost of capital, and its objective is to maximize present value. a. Is the investment attractive to Wenceslas Refining from the project's viewpoint? b. Is the investment attractive to Wenceslas Refining from the parent's viewpoint? Question 4 Question 5 Cammings before taxes Less Czech corporate income taxes (25%) Net income * Question 6 * Question 7 Add back depreciation Less additional working capital investment Sale value Free cash flows for discounting Help me solve this View an example Get more help $ Clear all Check answer