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Hello! I need help with the below showing as both the project and parent point of view! Thank you in advance! Natural Mosaic Company (U.S.)

Hello! I need help with the below showing as both the project and parent point of view! Thank you in advance!

Natural Mosaic Company (U.S.) is considering investing Rupees 50,000,000 in India to create a wholly owned tile manufacturing plant to export to the US market. After five years, the subsidiary would be sold to Indian investors for Rs100,000,000. A pro forma income statement for the Indian operation predicts the generation of Rs7,000,000 of annual cash flow, is listed in the following table.

Sales revenue

30,000,000

Less cash operation expenses

(17,000,000)

Gross income

13,000,000

Less depreciation expenses

(1,000,000)

Earnings before interest and taxes

12,000,000

Less Indian taxes at 50%

(6,000,000)

Net income

6,000,000

Add back depreciation

1,000,000

Annual cash flow

7,000,000

The initial investment will be made on December 31, 2011, and cash flows will occur on December 31st of each succeeding year. Annual cash dividends to Philadelphia Composite from India will equal 75% of accounting income.

The U.S. corporate tax rate is 40% and the Indian corporate tax rate is 50%. Because the Indian tax rate is greater than the U.S. tax rate, annual dividends paid to Natural Mosaic will not be subject to additional taxes in the United States. There are no capital gains taxes on the final sale. Natural Mosaic uses a weighted average cost of capital of 14% on domestic investments, but will add six percentage points for the Indian investment because of perceived greater risk. Natural Mosaic forecasts the rupee/dollar exchange rate for December 31st on the next six years are listed below.

R$/$

R$/$

2111

50

2014

62

2012

54

2015

66

2013

58

2016

70

What is the net present value and internal rate of return on this investment? Show both the project and parent point of view.

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