Max Time 60 Mins Background Spartan, Inc., is considering the development of a subsidiary in Singapore that would manufacture and sell tennis rackets locally. Spartan's financial managers have asked the manufacturing, marketing, and financial departments to provide them with relevant input so they can apply a capital budgeting analysis to this proj- ect. In addition, some Spartan executives have met with government officials in Sin gapore to discuss the proposed subsidiary. The project would end in 4 years. All relevant information follows. 1. Initial investment. The project would require an initial investment of 20 million Singapore dollars (SS), which includes funds to support working capital. Given the existing spot rate of 5.50 per Singapore dollar, the US dollar amount of the parent's initial investment is ss20 million X 8.50 - $10 million. 2. Price and consumer demand. The estimated price and demand schedules during cach of the next 4 years are shown here Price per Tennis Racket Demand in Singapore YEAR 1 S8350 60.000 units YEAR 2 SS350 50.000 units YEAR 3 S5360 100.000 units YEAR 4 S5380 100.000 3. Costs. The variable costs (for materials, labor, etc.) per unit have been estimated and consolidated as shown here YEAR 1 YEAR 2 YEAR 3 YEAR 4 Variable Costs per Tennis SS200 S5200 Racket The expense of leasing extra office space is S$1 million per year. Other annual overhead expenses are expected to be S1 million per year. 4. Tax Laws. The Singapore government will allow Spartans subsidiary to depreciate the cost of the plant and equipment at a maximum rate of $2 million per year, which is the rate the subsidiary will use. The Singapore government will impose a 20 percent tax rate on income. In addition, it will impose a 10 percent withholding tax on any funds remitted by the subsidiary to the parent The US government will allow a tax credit on taxes paid in Singapore therefore, earnings remitted to the U.S. parent will not be taxed by the U.S. government. 4. Tax Laws. The Singapore government will allow Spartan's subsidiary to depreciate the cost of the plant and equipment at a maximum rate of S$2 million per year, which is the rate the subsidiary will use. The Singapore government will impose a 20 percent tax rate on income. In addition, it will impose a 10 percent withholding tax on any funds remitted by the subsidiary to the parent The US government will allow a tax credit on taxes paid in Singapore, therefore, earnings remitted to the U.S.parent will not be taxed by the U.S. government 5. Remitted funds The Spartan subsidiary plans to send all net cash flows received back to the parent firm at the end of each year. The Singapore government promises no restrictions on the cash flows to be sent back to the parent firm but does impose a 10 percent withholding tax on any funds sent to the parent, as mentioned earlier. 6. Exchange rates. The spot exchange rate of the Singapore dollar is 5.50. Spartan uses the spot rate as its forecast for all future periods. 7. Salvage value. The Singapore government will pay the parent S$12 million to assume ownership of the subsidiary at the end of 4 years. Assume that there is no capital gains tax on the sale of the subsidiary. 8. Required rate of return. Spartan, Inc., requires a 15 percent return on this project. Requirement: 1. You need to calculate the NPV and IRR of the Singapore project for Spartan (US Based Parent Co.) 2. NPV and IRR should be calculated based on Remitted Cash flows denominated in US Dollars. 3. You must use input section in your Excel sheet, highlighted in yellow, so that your calculations should be dynamic 4. Once you are done with the calculation of NPV and IRR, you should run a scenario analysis using Scenario manager of Excel. a. Worst Case Scenario: Exchange Rate=$0.2/5S, Discount rate=20%, Tax rate on income=25%, Tax rate on remitted cash flows to Parent=15% b. Best Case Scenario: Exchange Rate=$0.8/5$, Discount rate=10%, Tax rate on income=15%, Tax rate on remitted cash flows to Parent=5% General Instructions Case must be solved in an Excel Sheet Sheet 1 of Excel File Must contain your name, roll number, section. Sheet 2 should be your main working sheet. Sheet 3 must contain the results of Scenario analysis. There should not be any extra sheet in the excel file, except the three sheets mentioned above. Max Time 60 Mins Background Spartan, Inc., is considering the development of a subsidiary in Singapore that would manufacture and sell tennis rackets locally. Spartan's financial managers have asked the manufacturing, marketing, and financial departments to provide them with relevant input so they can apply a capital budgeting analysis to this proj- ect. In addition, some Spartan executives have met with government officials in Sin gapore to discuss the proposed subsidiary. The project would end in 4 years. All relevant information follows. 1. Initial investment. The project would require an initial investment of 20 million Singapore dollars (SS), which includes funds to support working capital. Given the existing spot rate of 5.50 per Singapore dollar, the US dollar amount of the parent's initial investment is ss20 million X 8.50 - $10 million. 2. Price and consumer demand. The estimated price and demand schedules during cach of the next 4 years are shown here Price per Tennis Racket Demand in Singapore YEAR 1 S8350 60.000 units YEAR 2 SS350 50.000 units YEAR 3 S5360 100.000 units YEAR 4 S5380 100.000 3. Costs. The variable costs (for materials, labor, etc.) per unit have been estimated and consolidated as shown here YEAR 1 YEAR 2 YEAR 3 YEAR 4 Variable Costs per Tennis SS200 S5200 Racket The expense of leasing extra office space is S$1 million per year. Other annual overhead expenses are expected to be S1 million per year. 4. Tax Laws. The Singapore government will allow Spartans subsidiary to depreciate the cost of the plant and equipment at a maximum rate of $2 million per year, which is the rate the subsidiary will use. The Singapore government will impose a 20 percent tax rate on income. In addition, it will impose a 10 percent withholding tax on any funds remitted by the subsidiary to the parent The US government will allow a tax credit on taxes paid in Singapore therefore, earnings remitted to the U.S. parent will not be taxed by the U.S. government. 4. Tax Laws. The Singapore government will allow Spartan's subsidiary to depreciate the cost of the plant and equipment at a maximum rate of S$2 million per year, which is the rate the subsidiary will use. The Singapore government will impose a 20 percent tax rate on income. In addition, it will impose a 10 percent withholding tax on any funds remitted by the subsidiary to the parent The US government will allow a tax credit on taxes paid in Singapore, therefore, earnings remitted to the U.S.parent will not be taxed by the U.S. government 5. Remitted funds The Spartan subsidiary plans to send all net cash flows received back to the parent firm at the end of each year. The Singapore government promises no restrictions on the cash flows to be sent back to the parent firm but does impose a 10 percent withholding tax on any funds sent to the parent, as mentioned earlier. 6. Exchange rates. The spot exchange rate of the Singapore dollar is 5.50. Spartan uses the spot rate as its forecast for all future periods. 7. Salvage value. The Singapore government will pay the parent S$12 million to assume ownership of the subsidiary at the end of 4 years. Assume that there is no capital gains tax on the sale of the subsidiary. 8. Required rate of return. Spartan, Inc., requires a 15 percent return on this project. Requirement: 1. You need to calculate the NPV and IRR of the Singapore project for Spartan (US Based Parent Co.) 2. NPV and IRR should be calculated based on Remitted Cash flows denominated in US Dollars. 3. You must use input section in your Excel sheet, highlighted in yellow, so that your calculations should be dynamic 4. Once you are done with the calculation of NPV and IRR, you should run a scenario analysis using Scenario manager of Excel. a. Worst Case Scenario: Exchange Rate=$0.2/5S, Discount rate=20%, Tax rate on income=25%, Tax rate on remitted cash flows to Parent=15% b. Best Case Scenario: Exchange Rate=$0.8/5$, Discount rate=10%, Tax rate on income=15%, Tax rate on remitted cash flows to Parent=5% General Instructions Case must be solved in an Excel Sheet Sheet 1 of Excel File Must contain your name, roll number, section. Sheet 2 should be your main working sheet. Sheet 3 must contain the results of Scenario analysis. There should not be any extra sheet in the excel file, except the three sheets mentioned above