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Hoosier, Inc., is planning a project in the United Kingdom. It would lease space for one year in a shopping mall to sell expensive clothes
Hoosier, Inc., is planning a project in the United Kingdom. It would lease space for one year in a shopping mall to sell expensive clothes manufactured in the United States. The project would end in one year, when all earnings would be remitted to Hoosier, Inc. Assume that no additional corporate taxes are incurred beyond those imposed by the British government. Because Hoosier, Inc., would rent space, it would not have any long-term assets in the United Kingdom and expects the salvage (terminal) value of the project to be about zero. Assume that the project's required rate of return is 18 percent. Also assume that the initial outlay required by the parent to fill the store with clothes is $200,000. The pretax earnings are expected to be 300,000 at the end of one year. The British pound is expected to be worth $1.60 at the end of one year, when the after-tax earnings are converted to dollars and remitted to the United States. The following forms of country risk must be considered: The British economy may weaken (probability = 30 percent), which would cause the expected pretax earnings to be 200,000. The British corporate tax rate on income earned by U.S. firms may increase from 40 to 50 percent (probability 20 percent). = These two forms of country risk are independent. It means that there are four possible scenarios. Explain how the capital budgeting analysis would need to be adjusted if there were three possible outcomes for the British pound along with the possible outcomes for the British economy and corporate tax rate. Round your answer to the nearest whole number. If Hoosier Inc. used three possible outcomes for the pound, the total number of possible scenarios would be
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