Evaluate another proposal to move the manufacturing facility from China to Vietnam (Appendix Q2.1 and Q2.2), using NPV analysis. The evaluation should include a review of the assumptions made that need to be factored into the decision-making process. Note: round the values to the nearest million dollars. China China China UK \m \m m m 2019 2020 2021 2019 Product sold (units) 8,500,000 7,950,000 6,250,000 6,700,000 5,500 Turnover 2,178 2,404 2,113 239 Cost of sales 1,013 1,161 1,088 112 Admin expenses 370 481 454 41 Selling & distribution expenses 320 433 423 33 Operating profit 475 329 148 53 Interest 0 0 0 6 Income tax expense 0 0 0 13 Profit after tax 475 329 148 34 UK UK Total Total Total . m m m m m 2020 2021 2019 2020 2021 5,500,000 5,100,000 15,200,000 13,450,000 11,350,000 200 175 596 582 500 95 89 278 279 256 39 38 102 115 108 35 35 85 104 100 31 13 131 84 36 7 10 6 7 10 8 3 3 13 8 3 16 0 112 69 23 Appendix Q2.2: Manufacturing unit's business proposal D to move production from China to Vietnam The establishment of a production facility on the outskirts of Hanoi would cost US$480m. An initial 10% is payable immediately with the remaining 90% payable at the end of year 1. The Vietnamese government incentivises foreign direct investment, with incentives including capital grant funding of up to 50% of the initial capital investment, payable in equal instalments over 5 years, starting in year 1. No writing down allowance is available on any element of the capital expenditure as a result of the capital grant provision. The grant funding is repayable if the company leaves Vietnam within 5 years. In addition, a working capital investment of US$96m would be required at the outset of the investment. A subsidiary company (Jasmine Vietnam) would be the corporate vehicle through which the company would operate in Vietnam. US$30,000 has already been incurred to date exploring the legal structure of a company in Vietnam. A loan facility of US$480m would be established with Bank Vietnam to finance the construction of the production facility, with the interest rate cost expected to be 12%. In addition, an overdraft facility of US$100m would be established with an interest rate cost of 15%. Use the overall Group cost of capital benchmark for investments of this nature of 10% to appraise this capital proposal. The following plant projections have been provided and are expressed in current terms. Table 4: Project savings projection Year 1 Year 2 Year 3 Year 4 Year 5 $m $m $m $m $m Reduced labour costs 40 38 36 34 32 Savings on distribution costs 20 20 20 20 20 The corporate tax rate for investors in Vietnam is 5% based on sales value for the relevant year and is paid one year in arrears. By relocating to Vietnam, it is expected that sales demand will increase 20% compound per annum over the 2021 sales units achieved from the China plant. The reduced cost base on relocating to Vietnam is expected to enable a reduced pricing point of US$35 per unit of product on average), thus generating the additional sales demand. A net margin of 15% is assumed on the additional sales. An estimate of US$30m per annum (in current terms) has been computed for the allocation of central fixed costs of the parent entity to this activity. Plant closure and wind down costs of the China facility are expected to be equivalent of US$80m, with 30% payable now, and the balance payable at the end of year 1. As part of the conditions for the original investment in China (and any incentives received by Jasmine), the sale of the plant and associated lands in China cannot be realised until year 3 post cessation of activities. The expected net sales value in year 3 is US$260m. The land in China had an original cost of US$45m. Ignore inflation. All transactions have been reflected in US$ as part of the capital generation proposal. There is no tax impact on transactions included in the NPV analysis associated with the China facility. The capital grant received from the Vietnamese government is not subject to tax in Vietnam. Evaluate another proposal to move the manufacturing facility from China to Vietnam (Appendix Q2.1 and Q2.2), using NPV analysis. The evaluation should include a review of the assumptions made that need to be factored into the decision-making process. Note: round the values to the nearest million dollars. China China China UK \m \m m m 2019 2020 2021 2019 Product sold (units) 8,500,000 7,950,000 6,250,000 6,700,000 5,500 Turnover 2,178 2,404 2,113 239 Cost of sales 1,013 1,161 1,088 112 Admin expenses 370 481 454 41 Selling & distribution expenses 320 433 423 33 Operating profit 475 329 148 53 Interest 0 0 0 6 Income tax expense 0 0 0 13 Profit after tax 475 329 148 34 UK UK Total Total Total . m m m m m 2020 2021 2019 2020 2021 5,500,000 5,100,000 15,200,000 13,450,000 11,350,000 200 175 596 582 500 95 89 278 279 256 39 38 102 115 108 35 35 85 104 100 31 13 131 84 36 7 10 6 7 10 8 3 3 13 8 3 16 0 112 69 23 Appendix Q2.2: Manufacturing unit's business proposal D to move production from China to Vietnam The establishment of a production facility on the outskirts of Hanoi would cost US$480m. An initial 10% is payable immediately with the remaining 90% payable at the end of year 1. The Vietnamese government incentivises foreign direct investment, with incentives including capital grant funding of up to 50% of the initial capital investment, payable in equal instalments over 5 years, starting in year 1. No writing down allowance is available on any element of the capital expenditure as a result of the capital grant provision. The grant funding is repayable if the company leaves Vietnam within 5 years. In addition, a working capital investment of US$96m would be required at the outset of the investment. A subsidiary company (Jasmine Vietnam) would be the corporate vehicle through which the company would operate in Vietnam. US$30,000 has already been incurred to date exploring the legal structure of a company in Vietnam. A loan facility of US$480m would be established with Bank Vietnam to finance the construction of the production facility, with the interest rate cost expected to be 12%. In addition, an overdraft facility of US$100m would be established with an interest rate cost of 15%. Use the overall Group cost of capital benchmark for investments of this nature of 10% to appraise this capital proposal. The following plant projections have been provided and are expressed in current terms. Table 4: Project savings projection Year 1 Year 2 Year 3 Year 4 Year 5 $m $m $m $m $m Reduced labour costs 40 38 36 34 32 Savings on distribution costs 20 20 20 20 20 The corporate tax rate for investors in Vietnam is 5% based on sales value for the relevant year and is paid one year in arrears. By relocating to Vietnam, it is expected that sales demand will increase 20% compound per annum over the 2021 sales units achieved from the China plant. The reduced cost base on relocating to Vietnam is expected to enable a reduced pricing point of US$35 per unit of product on average), thus generating the additional sales demand. A net margin of 15% is assumed on the additional sales. An estimate of US$30m per annum (in current terms) has been computed for the allocation of central fixed costs of the parent entity to this activity. Plant closure and wind down costs of the China facility are expected to be equivalent of US$80m, with 30% payable now, and the balance payable at the end of year 1. As part of the conditions for the original investment in China (and any incentives received by Jasmine), the sale of the plant and associated lands in China cannot be realised until year 3 post cessation of activities. The expected net sales value in year 3 is US$260m. The land in China had an original cost of US$45m. Ignore inflation. All transactions have been reflected in US$ as part of the capital generation proposal. There is no tax impact on transactions included in the NPV analysis associated with the China facility. The capital grant received from the Vietnamese government is not subject to tax in Vietnam