Multinational Capital Budgeting & Acquisitions
Assume 10% Depreciated (Rp/$) Rupiah-to-Dollar exchange rate as compared to those shown in the case study
Assume Sales volume to be 10% lower as compared to those shown in the case study
Compute NPV and IRR under the above conditions w.r.t. Project and Parent viewpoints
EXHIB BIT 18.5 Semen Indonesia Capital Budget: Project Viewpoint (millions of rupiah) 12.621 32,028 5 7,592,941 15.930 20,106 25,376 4 6,053,589 Exchange rate (Rp/USS) Project Year EBIT Less recalculated taxes @ 30% Add back depreciation Net operating cash flow Less changes to NwC Initial investment Terminal value Free cash flow (FCF) NPV @ 33.257% IRR NWC net working capital NPV = net present value. Discount rate is Semen indonesia's WACC of 33 257% IRR-internal rate of return, the rate of discount yielding an NPV of exactly zero. Values in exhibit are exact and are rounded to the nearest million. 10,000 3 4744,982 (365,709) (821,720) 1,423,495) 1,816,077) 2,277,882) 1,760,000 5,081,487 240,670(139,028) 195,379) 50,748 (190,265) 1219,029 2,739,067 1,760,000 2,613,320 1760,000 5,997,512 1,760,000 7,075,059 1,760,000 3,677,347 (22,000,000) 21,274,102 22,000,000) 2.372.650 3,538,319 4886,109 5,846,764 28,158,896 (7,606,313) 19.1% This highlights the distinction between an income statement and a capital budget. The project's income statement shows losses the first two years of operations as a result of interest expenses and forecast foreign exchange losses, so it is not expected to pay taxes. But the capital budget, constructed on the basis of EBIT, before these financing and foreign exchange expenses,calculates a positive tax payment EXHIB BIT 18.5 Semen Indonesia Capital Budget: Project Viewpoint (millions of rupiah) 12.621 32,028 5 7,592,941 15.930 20,106 25,376 4 6,053,589 Exchange rate (Rp/USS) Project Year EBIT Less recalculated taxes @ 30% Add back depreciation Net operating cash flow Less changes to NwC Initial investment Terminal value Free cash flow (FCF) NPV @ 33.257% IRR NWC net working capital NPV = net present value. Discount rate is Semen indonesia's WACC of 33 257% IRR-internal rate of return, the rate of discount yielding an NPV of exactly zero. Values in exhibit are exact and are rounded to the nearest million. 10,000 3 4744,982 (365,709) (821,720) 1,423,495) 1,816,077) 2,277,882) 1,760,000 5,081,487 240,670(139,028) 195,379) 50,748 (190,265) 1219,029 2,739,067 1,760,000 2,613,320 1760,000 5,997,512 1,760,000 7,075,059 1,760,000 3,677,347 (22,000,000) 21,274,102 22,000,000) 2.372.650 3,538,319 4886,109 5,846,764 28,158,896 (7,606,313) 19.1% This highlights the distinction between an income statement and a capital budget. The project's income statement shows losses the first two years of operations as a result of interest expenses and forecast foreign exchange losses, so it is not expected to pay taxes. But the capital budget, constructed on the basis of EBIT, before these financing and foreign exchange expenses,calculates a positive tax payment
