Question
I need with this question.....how to solve it in excel The Green Wheel Inc., a company that produces alternative energy vehicles is considering an expansion
I need with this question.....how to solve it in excel
The Green Wheel Inc., a company that produces alternative energy vehicles is considering an expansion of their product line to Taiwan. The expansion would require a purchase of equipment with a price of $4,500,000 and additional installation of $500,000 (assume that the installation costs cannot be expensed, but rather, must be depreciated over the life of the asset). Because this would be a new product, they will not be replacing existing equipment. The new product line is expected to increase revenues by Taiwan dollar (TWD) 60,000,000 per year over current levels for the next 5 years, however, expenses will also increase by TWD 25,000,000 per year. (Note: Assume the after-tax operating cash flows in years 1-5 are equal, and that the terminal value of the project in year 5 may change total after-tax cash flows for that year.) The equipment is multipurpose and the firm anticipates that they will sell it at the end of the five years for TWD 50,000,000. The firm's required rate of return is 12% and they are in the 20% tax bracket. Depreciation is straight-line to a value of 0 over the 5-year life of the equipment, and the project also expects an increase in NWC of TWD 5,000,000 per year for the next 5 years (to be recovered at the sale of the equipment at the end of five years). The current spot rate is TWD30/$, and the expected inflation rate in the U.S. is 4% per year and 3% per year in Taiwan.
- What are the EBIT for the Green Wheel project?
- What are the free cash flows for the Green Wheel project?
- What is the initial investment for the Green Wheel project?
- What is the NPV and IRR of the Taiwanese expansion from the project viewpoint?
- What are the forecasts of future exchange rates using the purchasing power parity?
- If all the free cash flows are remitted to the parent, what is the NPV and IRR of the Taiwanese expansion from the parent viewpoint?
- The Green Wheel Inc. ask you for advise on the investment. What is your recommendation? Explain your recommendation
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