Natural Mosaic Company (U.S.) is considering investing Rs52,000,000 in India to create a wholly owned tile manufacturing plant to export to the European market. After five years, the subsidiary would be sold to Indian investors for Rs104,000,000. A pro forma income statement for the Indian operation predicts the generation of Rs9,500,000 of annual cash flow, is listed in the popup table,

Sales revenueRs32,000,000

Less cash operating expenses(14,000,000)

Gross income Rs18,000,000

Less depreciation expenses(1,000,000)

Earnings before interest and taxes Rs17,000,000

Less Indian taxes at 50% (8,500,000)

Net income Rs8,500,000

Add back depreciation 1,000,000

Annual cash flow Rs9,500,000

The initial investment will be made on December 31, 2011, and cash flows will occur on December 31st of each succeeding year. Annual cash dividends to Natural Mosaic from India will equal 80% of accounting income. The U.S. corporate tax rate is 40% and the Indian corporate tax rate is 50%. Because the Indian tax rate is greater than the U.S. tax rate, annual dividends paid to Natural Mosaic will not be subject to additional taxes in the United States. There are no capital gains taxes on the final sale. Natural Mosaic uses a weighted average cost of capital of 14% on domestic investments, but will add six percentage points for the Indian investment because of perceived greater risk. Natural Mosaic forecasts for the rupee/dollar exchange rate on December 31st for the next six years are listed in the popup table,

2011 45 2014 57

2012 49 2015. 61

2013 53 2016. 65

a. What is the net present value and internal rate of return on this investment from the project's viewpoint?

b. What is the net present value and internal rate of return on this investment from the parent's viewpoint?

a. Calculate the cash flows in Indian rupees for years 2011 through 2013 below:(Round to the nearest whole number.)

		2011		2012		2013
Annual cash flow (Rs)			Rs	9,500,000	Rs	9,500,000
Initial investment (Rs)	Rs	(52,000,000)
Sale value (Rs)
Cash flows for discounting (Rs)	Rs		Rs		Rs

Part 2

Calculate the cash flows in Indian rupees for years 2014 through 2016 below:(Round to the nearest whole number.)

		2014		2015		2016
Annual cash flow (Rs)	Rs	9,500,000	Rs	9,500,000	Rs	9,500,000
Initial investment (Rs)
Sale value (Rs)					Rs	104,000,000
Cash flows for discounting (Rs)	Rs		Rs		Rs

Part 3

The net present value on this investment from the project's viewpoint is Rsenter your response here. (Round to the nearest whole number.)

Part 4

The internal rate of return on this investment from the project's viewpoint is enter your response here% (Round to two decimal places.)

Part 5

b. Calculate the cash flows in U.S. dollars for years 2011 through 2013 below:(Round to the nearest whole number.)

		2011		2012		2013
Net income (Rs)			Rs	8,500,000	Rs	8,500,000
Initial investment (Rs)	Rs	(52,000,000)
Dividends received in the U.S. (Rs)			Rs		Rs
Sale value (Rs)
Net cash flows to parent, after-tax (Rs)	Rs		Rs		Rs
Expected exchange rate (Rs/$)		45		49		53
Net cash flows to parent, after-tax ($)	$		$		$

Part 6

Calculate the cash flows in U.S. dollars for years 2014 through 2016 below:(Round to the nearest whole number.)

		2014		2015		2016
Net income (Rs)	Rs	8,500,000	Rs	8,500,000	Rs	8,500,000
Initial investment (Rs)
Dividends received in the U.S. (Rs)	Rs		Rs		Rs
Sale value (Rs)					Rs	104,000,000
Net cash flows to parent, after-tax (Rs)	Rs		Rs		Rs
Expected exchange rate (Rs/$)		57		61		65
Net cash flows to parent, after-tax ($)	$		$		$

Part 7

The net present value on this investment from the parent's viewpoint is $enter your response here. (Round to the nearest dollar.)

Part 8

The internal rate of return on this investment from the parent's viewpoint is enter your response here%. (Round to two decimal places.)