Documenti Word Layout References 1.ailing: Rei View Help Tell me you want to do 53. You are to read the attached notes and develop two items that will be added to the answer sheet under question 74 an assumption sheet and a worksheet. To help you along on this question, I live set up a worksheet for you that requires completion of the "data" slots. In tal calculations have been completed for you. The assumption sheet has also been added for you. Hint, there are two parts for the work sheet. Assumptions are shown the Real as listed for you. The work comes in correctly converting the exchange rates and completing the calculations on the worksheet. This also means that the work sheet will have two parts of similar headings that are developed for you. Therefore, fill in the blanks on the worksheet labeled "data'. This is not a difficult problem as most of the data is set up for you. However, it does require focus and discipline to complete the calculations correctly. Problem Notes-Space Technologies Inc. is considering a temporary investment in San Paulo Brazil by establishing a distribution center (DC). The purpose is to reduce handling cost, create a local market subsidiary for branding and be closer to its South American customers. This option would require SRT to make an original investment that would amount, in the Brazilian Real of BRL 36.75 million. This investment amount would convert to $7,000,000 at the current spot rate of BRL5.250/S. The use of the investment will result in fixed assets for the subsidiary. The fixed assets will be depreciated over ten years by the straight-line method. SRT's board has also agreed to invest another BRL15.75 million for working capital. Fixed DC operating cost is $1 million in year one, adding $30,000 per year. As a hedge against the risk, ST has set a buyout of their investment at the end of the profile period. CFO wants the worksheet to be set up for Capital budgeting purposes in a three-year profile. SRT'S board assumes sale of the venture, would be available to local investors 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. O and Texposure will be handled (1) by having all free cash flow repatriated to the US as soon as possible as dividends, and (2) Ferate experts forecast the U.S. dollar to lose value with BRLO.250 gaining value against the dollar for each year profiled. Distribution Center variable costs are expected to be 50% of sales price add on. No additional funds will be invested in the U.S. subsidiary during the period under consideration Local managements Documenti - Word Out References View Mailings Review Tell me what you want to do Distribution Center variable costs are expected to be SOK of sales price add on. No additional funds will be invested in the U.S. subsidiary during the period under consideration. Local management is expected to operate without needing any loans. The one set of assumptions on revenue are related to how the distribution center will generate revenue during the profile period. Annual Units handled (sales) will be 700,000/yr1,900,000/y2; and 1,000,000/yrs. The add on handling charge per unit is $10/y: 1; $10.50/yr2 and $11.03/yr3. Recall that allindusive expenses have been set as 50% of each unit's handling charge. The Brazilian Republic imposes no restrictions on repatriation of any funds of any sort. The foreign corporate tax rate is 25% and the United States rate is 30%. Both countries allow a tax credit for taxes paid in other countries. SRT uses 18% as its weighted average cost of capital, and its financial objective is to maximize present value. The assignment is to determine if the investment is attractive to SRT using a project view and to present SRT board members with a view in dollars. Again, if SRT had to eat at the end of the analysis profile, recovery sale value of the total investment is expected to be 79% or the netbook value of the foxed assets at $7.9 million Assumption Exhibit Project View Descritive Terms Value O Document - Word References Mailings Review View Help Tell me what you want to do Assumption Exhibit Project View Descriptive Terms Investment Fixed Assets in BRL Investment Working Capital in BRL Eat Sale Value Year Three BRL Spot Exchange Rate BRA/S Exchange rate future less yearly adjustment BRL Value 36,750,000 15,750,000 43,475,000 5.25 -0.25 each year Work Sheet Exhibit - San Paulo Brazil Distribution Center 3 Year Profile Project View in US Dollars Descriptive Terms Year o Year 1 Year 2 Year 2 Investment Fixed Assets $17,000,000) Working Capital (3,000,000) Revenue Units Sold 7,000,000 data data Handling Mark UP/unit $10.00 data data Gross Revenue $7,000,000 data data Less All-inclusive Handling Charge (50%) 3.500,000) Gross Profit $3,500,000 data data Less fixed cash operating expenses (1,000,000) data data Less depreciation at 10% (700.000) data data Earnings before taxes $1,800,000 data data Less Brazilian Corporate Taxes 25% 1450.000 data data Net Income $1,350,000 data data o Laut References lings Rese Help Tell me that you want to de 700,000 data Add back depreciation Edt Sale Value Free Cash Flow discounting data data data $(10,000,000) $2,050,000 data Present valup factor 10% 1.0000 0.8475 data data Present value of cash flow ${10,000,000 $1,737,288 data data Cumulative NPV $data Year Year 2 Year S(10,000,000 Year Parent View in US Dollars Descriptive Terms Total Investment Dividends Remitted to Parent Add back Brazilian taxes paid Grossed up dividend data $1,350,000 450.000 $1,800,000 data data data data data US tax liability 30% $540,000 data data DOL F6 FB A9 F10 F11 F12 Priser Documenti Word chum References Palings Vies Help Tell me what you want to de Present value of cash flow $110,000,000 $1,737,288 data Cumulative NPV $ data Year 1 Year 2 Year 3 Year o ${10,000,000 Parent View in US Dollars Descriptive Terms Total investment Dividends Remitted to Parent Add back Brazilian taxes paid Grossed up dividend data $1,350,000 450,000 $1,800,000 data data data data data 306 US tax liability Less credit for Brazilian taxes paid us taxes due on foreign earnings $ 540,000 1450,000) $ 90,000 data data data data data data $1,250,000 data US Dividend less added US taxes Plus, exit sale value Parent Cash Flows data $data data ${10,000,000) $ 1.260,000 data data Present value factor 18% Present value of cash flows 1.0000 S(10,000,000) 0.8475 $ 1,067,797 date data data Cumulative NPV $ data o G DOLL Documenti Word Layout References 1.ailing: Rei View Help Tell me you want to do 53. You are to read the attached notes and develop two items that will be added to the answer sheet under question 74 an assumption sheet and a worksheet. To help you along on this question, I live set up a worksheet for you that requires completion of the "data" slots. In tal calculations have been completed for you. The assumption sheet has also been added for you. Hint, there are two parts for the work sheet. Assumptions are shown the Real as listed for you. The work comes in correctly converting the exchange rates and completing the calculations on the worksheet. This also means that the work sheet will have two parts of similar headings that are developed for you. Therefore, fill in the blanks on the worksheet labeled "data'. This is not a difficult problem as most of the data is set up for you. However, it does require focus and discipline to complete the calculations correctly. Problem Notes-Space Technologies Inc. is considering a temporary investment in San Paulo Brazil by establishing a distribution center (DC). The purpose is to reduce handling cost, create a local market subsidiary for branding and be closer to its South American customers. This option would require SRT to make an original investment that would amount, in the Brazilian Real of BRL 36.75 million. This investment amount would convert to $7,000,000 at the current spot rate of BRL5.250/S. The use of the investment will result in fixed assets for the subsidiary. The fixed assets will be depreciated over ten years by the straight-line method. SRT's board has also agreed to invest another BRL15.75 million for working capital. Fixed DC operating cost is $1 million in year one, adding $30,000 per year. As a hedge against the risk, ST has set a buyout of their investment at the end of the profile period. CFO wants the worksheet to be set up for Capital budgeting purposes in a three-year profile. SRT'S board assumes sale of the venture, would be available to local investors 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. O and Texposure will be handled (1) by having all free cash flow repatriated to the US as soon as possible as dividends, and (2) Ferate experts forecast the U.S. dollar to lose value with BRLO.250 gaining value against the dollar for each year profiled. Distribution Center variable costs are expected to be 50% of sales price add on. No additional funds will be invested in the U.S. subsidiary during the period under consideration Local managements Documenti - Word Out References View Mailings Review Tell me what you want to do Distribution Center variable costs are expected to be SOK of sales price add on. No additional funds will be invested in the U.S. subsidiary during the period under consideration. Local management is expected to operate without needing any loans. The one set of assumptions on revenue are related to how the distribution center will generate revenue during the profile period. Annual Units handled (sales) will be 700,000/yr1,900,000/y2; and 1,000,000/yrs. The add on handling charge per unit is $10/y: 1; $10.50/yr2 and $11.03/yr3. Recall that allindusive expenses have been set as 50% of each unit's handling charge. The Brazilian Republic imposes no restrictions on repatriation of any funds of any sort. The foreign corporate tax rate is 25% and the United States rate is 30%. Both countries allow a tax credit for taxes paid in other countries. SRT uses 18% as its weighted average cost of capital, and its financial objective is to maximize present value. The assignment is to determine if the investment is attractive to SRT using a project view and to present SRT board members with a view in dollars. Again, if SRT had to eat at the end of the analysis profile, recovery sale value of the total investment is expected to be 79% or the netbook value of the foxed assets at $7.9 million Assumption Exhibit Project View Descritive Terms Value O Document - Word References Mailings Review View Help Tell me what you want to do Assumption Exhibit Project View Descriptive Terms Investment Fixed Assets in BRL Investment Working Capital in BRL Eat Sale Value Year Three BRL Spot Exchange Rate BRA/S Exchange rate future less yearly adjustment BRL Value 36,750,000 15,750,000 43,475,000 5.25 -0.25 each year Work Sheet Exhibit - San Paulo Brazil Distribution Center 3 Year Profile Project View in US Dollars Descriptive Terms Year o Year 1 Year 2 Year 2 Investment Fixed Assets $17,000,000) Working Capital (3,000,000) Revenue Units Sold 7,000,000 data data Handling Mark UP/unit $10.00 data data Gross Revenue $7,000,000 data data Less All-inclusive Handling Charge (50%) 3.500,000) Gross Profit $3,500,000 data data Less fixed cash operating expenses (1,000,000) data data Less depreciation at 10% (700.000) data data Earnings before taxes $1,800,000 data data Less Brazilian Corporate Taxes 25% 1450.000 data data Net Income $1,350,000 data data o Laut References lings Rese Help Tell me that you want to de 700,000 data Add back depreciation Edt Sale Value Free Cash Flow discounting data data data $(10,000,000) $2,050,000 data Present valup factor 10% 1.0000 0.8475 data data Present value of cash flow ${10,000,000 $1,737,288 data data Cumulative NPV $data Year Year 2 Year S(10,000,000 Year Parent View in US Dollars Descriptive Terms Total Investment Dividends Remitted to Parent Add back Brazilian taxes paid Grossed up dividend data $1,350,000 450.000 $1,800,000 data data data data data US tax liability 30% $540,000 data data DOL F6 FB A9 F10 F11 F12 Priser Documenti Word chum References Palings Vies Help Tell me what you want to de Present value of cash flow $110,000,000 $1,737,288 data Cumulative NPV $ data Year 1 Year 2 Year 3 Year o ${10,000,000 Parent View in US Dollars Descriptive Terms Total investment Dividends Remitted to Parent Add back Brazilian taxes paid Grossed up dividend data $1,350,000 450,000 $1,800,000 data data data data data 306 US tax liability Less credit for Brazilian taxes paid us taxes due on foreign earnings $ 540,000 1450,000) $ 90,000 data data data data data data $1,250,000 data US Dividend less added US taxes Plus, exit sale value Parent Cash Flows data $data data ${10,000,000) $ 1.260,000 data data Present value factor 18% Present value of cash flows 1.0000 S(10,000,000) 0.8475 $ 1,067,797 date data data Cumulative NPV $ data o G DOLL