Natural Mosaic Company (U.S.) is considering investing Rs58,000,000 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 Rs116,000,000. A pro forma income statement for the Indian operation predicts the generation of Rs9,500,000 of annual cash flow, which is listed in the popup table.

Sales_revenue Rs36,000,000

Less_cash_operating_expenses (18,000,000) 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 85% 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 13% 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 pop-up table,

2011 45 2014 54 2012 48 2015 57 2013 51 2016 60

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

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