fast as 15 minutes FIN 417 - Chapt 5. In class, we examined Hermosa Beach Components, a U.S. company which considered are considered. replacing its exports of lights bulbs with building a manufacturing facility in Argentina. All information we learnt about the company is again presented below. Then, some modifications Hermosa Beach Components, Inc., of California exports 24,000 sets of low-density light bulbs per year to Argentina under an import license that expires in five years. In Argentina the bulbs are so for the Argentine peso equivalent of $60 per set. Direct manufacturing costs in the United States shipping together amount to $40 per set. The Argentine government has invited Hermosa to oper manufacturing plant so imported bulbs can be replaced by local production. If Hermosa makes th investment, it will operate the plant for five years and then sell the building and equipment to Argentine investors at net book value at the time of sale plus the value of any net working capit (Net working capital is the amount of current assets less any portion financed by local debt.) Hermosa will be allowed to repatriate all net income and depreciation funds to the United State each year. Hermosa traditionally evaluates all foreign investments in U.S. dollar terms. The tax rate in Argentina and in the U.S. is 40%. As a result of its analysis, Hermosa wishes to explore the implications of being able to grow sales volume by 4% per year. Argentine inflation is expected to average 5% per year, so sale and material cost increases of 7% and 6% per year, respectively, are thought reasonable. Alt material costs in Argentina are expected to rise, US-based costs are not expected to change the five year period. One of your analyst colleagues has already begun working on the task from the project standpoint and has computed annual project cash flows as follows: $512,000; $574,208; $644,159; $722,775, and $811,085 for years 1-5, respectively. Below you will find a summary of selected information. Selected key variables Value Growth Light bulb export or producion volume to Argentina, per year 24,000 4.00% Sales price per set in Argentina Material costs per set in Argentina Material and shipping costs of imported U.S components per set Direct & indirect cost per set for U.S. parent per set Depreciable investment (buildings & equipment) GA GA GA GA GA 60.00 7.00% 20.00 6.00% 10.00 0.00% 5.00 0.00% 1,000,000 Initial investment in net working capital $ 1,000,000 Discount rate in Argentina 15.00% our job is to develop an analysis from the parent viewpoint and compute NPV. the project acceptable? (20 points)
