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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 20 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 400,000 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 = 20 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 30 to 40 percent (probability = 40 percent). These two forms country are independent. Calculate the expected value the project's net present value (NPV). Do not round intermediate calculations. Round your answer to the nearest dollar. $ Determine the probability that the project will have a negative NPV. Round your answer to the nearest whole number. % 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 20 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 400,000 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 = 20 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 30 to 40 percent (probability = 40 percent). These two forms country are independent. Calculate the expected value the project's net present value (NPV). Do not round intermediate calculations. Round your answer to the nearest dollar. $ Determine the probability that the project will have a negative NPV. Round your answer to the nearest whole number. %
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