Mexico (30% tax rate)

* Fizzer will have to enter into a partnership agreement with a local vaccine manufacturer (AstroZeneca) in which Fizzer will need to invest Php 20 Million in cash and Php 5 Million in inventories while Astrozeneca will invest in another Php 25 Million in cash. The partnership will then purchase the necessary machineries (amounting to 45 Million) needed to produce the vaccines.

* Fizzer and Astrozeneca will share the free cash flow at 50%-50% based on their capital contributions into the partnership.

* The partnership is expected to be able to produce 1,000,000 vaccines per year in which the margin is expected to be at Php 14.00 per vaccine growing at 10% per year

* Operating Expenses in Mexico is expected to be at 10% Margin and increasing by 1% per year. (i.e. 11% in year 2, 12% in year 3, 13% in year 4, and 14% in year 5.

* In response to the global health crisis, Mexico provides a 5-year tax break (0% tax) to vaccine manufacturers plus an annual government subsidy of Php 1,000,000 increasing by 10% every year. (compounded)

* Considering the riskiness of Mexico, WACC is estimated at 12%

CAPITAL BUDGETING QUESTIONS:

1. What is the net investment cost for Mexico?
2. What is the profitability index for Mexico? For Consistency Please Use: PI = 1 + (NPV/ Investment Cost)
3. What is the NPV for Mexico?
4. What is the IRR for Mexico?
5. Given limitation in capital available, should Fizzer pursue Mexico project?

The ffg formula or an excel spreadsheet can be used

Investment
	Renovation Cost
	Importation, Testing and Installation Cost for New Machineries
Incremental Cash Flows
	Revenues
	Cost of Goods Sold
	Gross Margin
	Operating Expenses Add: Depreciation
	Earnings before Tax
	Less: Income Tax
	Net Income
	Add: Depreciation
	Free Cash Flows
Sum of Cash Flows
Present Value
Net Present Value
Given:
WACC