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Dick Smith Foods. is a U . S . company that is considering expanding its operations into Japan. The company supplies processed foods to storefront

Dick Smith Foods. is a U.S. company that is considering expanding its operations into Japan. The company supplies processed foods to storefront delicatessens in large cities. This requires Dick Smith Foods to have a centralized production and warehousing facility in each of these cities. Dick Smith Foods has located a possible site for a Japanese subsidiary in Tokyo. The cost to purchase and equip the facility is 885,000,000. Perform an NPV analysis to determine whether this is a good investment, under the following assumptions:a. The average per-unit sales price will initially be 510. b. First-year sales will be 17 million units, and physical sales will then grow at 10% per annum for the next 3 years. c. First-year variable costs of production will be 325 per unit of labor and $1.85 per unit of imported semi-finished goods. Administrative costs will be 200 million. d. Retail prices, labor costs, and administrative expenses are expected to rise at the Japanese yen rate of inflation, which is forecast to be 1%. Dollar prices of semi-finished goods are expected to rise at the U.S. dollar rate of inflation, which is expected to be 4%. e. The yen>dollar exchange rate is currently 85>$, and the yen is expected to appreciate at 3%. f. The Japanese corporate income tax rate is 34%, and there is a 10% withholding tax on payments to parent company. g. The yen-denominated equity discount rate for the project is 13%. h. All of the Japanese subsidiarys free cash flow will be paid to the parent company. (15)

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