Hermosa$$ Components: Baseline Analysis. Hermosa Beach$$ Components, Inc., of California exports sets of$$ low$-$density light bulbs per year to Argentina under an import license that expires in five years. In$$ Argentina, the bulbs are sold for the Argentine peso equivalent of $$$ per set. Direct manufacturing costs in the United States and shipping together amount to$$ $$40$ per set. The market for this type of bulb in Argentina is$$ stable, neither growing nor$$ shrinking, and Hermosa holds the major portion of the market.

The Argentine government has invited Hermosa to open a manufacturing plant so imported bulbs can be replaced by local production. If Hermosa makes the$$ investment, it will operate the plant for five years and then sell the building and equipment to Argentine investors at net book value at the time of sale plus the value of any net working capital.$($Net working capital is the amount of current assets less any portion financed by local$$ debt.$)$ Hermosa will be allowed to repatriate all net income and depreciation funds to the United States each year. Hermosa traditionally evaluates all foreign investments in U$.$S$.$ dollar terms.

Investment.$$ Hermosa's anticipated cash outlay in U$.$S$.$ dollars in $2012$ would be as$$ follows: LOADING.... All investment outlays will be made in$2012,$ and all operating cash flows will occur at the end of years $2013$ through $2017.$

Depreciation and Investment Recovery. Building and equipment will be depreciated over five years on a$$ straight$-$line basis. At the end of the fifth$$ year, the $$$ of net working capital may also be repatriated to the United$$ States, as may the remaining net book value of the plant.

Sales Price of Bulbs. Locally manufactured bulbs will be sold for the Argentine peso equivalent of $$$ per set.

Operating Expenses per Set of Bulbs. Material purchases are as$$ follows: LOADING....

Transfer Prices. The $$$ transfer price per set for raw material sold by the parent consists of $$$ of direct and indirect costs incurred in the United States on their$$ manufacture, creating$$ $$5$ of$$ pre$-$tax profit to Hermosa Beach.

Taxes. The corporate income tax rate is $\%$ in both Argentina and the United States$($combined federal and$$ state$/$province$).$ There are no capital gains taxes on the future sale of the Argentine$$ subsidiary, either in Argentina or the United States.

Discount Rate. Hermosa Components uses a discount rate of $\%$ to evaluate all domestic and foreign projects.

Evaluate the proposed investment in Argentina by Hermosa Components$($U$.$S$.).$ Hermosa's management wishes the baseline analysis to be performed in U$.$S$.$ dollars$($and implicitly also assumes the exchange rate remains fixed throughout the life of the$$ project$).$ Create a project viewpoint capital budget and a parent viewpoint capital budget. What do you conclude from your$$ analysis?