Natural Mosaic. Natural Mosaic Company (U.S.) is considering investing Rs80,000,000 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 Rs120,000,000. A pro forma income statement for the Indian operation predicts the generation of Rs11,000,000 of annual cash flow, is listed in the popup table. 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 75% 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. 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 X 2012 11,000,000 Rs 2013 11,000,000 Data table Annual cash flow (Rs) Rs (60,000,000) Initial investment (Rs) Rs Sale value (Rs) Sales revenue Cash flows for discounting (Rs) Rs Rs Rs Less cash operating expenses Gross income R$33,000,000 (14,000,000) Rs19,000,000 (3,000,000) Calculate the cash flows in Indian rupees for years 2014 through 2018 below: (Round to the nearest whole number.) Less depreciation expenses Earnings before interest and taxes Less Indian taxes at 50% 2014 11,000,000 Rs 2015 11,000,000 Rs 2016 11,000,000 Net income Rs 16,000,000 (8,000,000) R$8,000,000 3,000,000 R$11,000,000 Annual cash flow (Rs) Rs Add back depreciation Initial investment (Rs) Annual cash flow Sale value (Rs) Rs 120,000,000 Rs Rs Rs Cash flows for discounting (Rs) The net present value on this investment from the project's viewpoint is Rs. (Round to the nearest whole number.) The internal rate of return on this investment from the project's viewpoint is%. (Round to two decimal places.) b. Calculate the cash flows in U.S. dollars for years 2011 through 2013 below: (Round to the nearest whole number.) 2011 2012 8,000,000 Rs 2013 8,000,000 Net income (Rs) Rs Initial investment (Rs) Rs (60,000,000) Dividends received in the U.S. (Rs) Rs Rs Sale value (Rs) Net cash flows to parent, after-tax (Rs) Rs Rs Rs Expected exchange rate (Rs/S) 49 53 57 Net cash flows to parent, after-tax (5) Calculate the cash flows in U.S. dollars for years 2014 through 2016 below: (Round to the nearest whole number.) 2016 2014 8,000,000 Rs 2015 8,000,000 Rs Net income (Rs) Rs 8,000,000 Initial investment (Rs) Dividends received in the U.S. (Rs) Rs Rs Rs Sale value (Rs) Rs 120,000,000 Net cash flows to parent, after-tax (Rs) Rs Rs Rs Expected exchange rate (Rs/S) 61 85 69 Net cash flows to parent, after-tax ($) The net present value on this investment from the parent's viewpoint is $ (Round to the nearest dollar.) The internal rate of return on this investment from the parent's viewpoint is%. (Round to two decimal places.) Data table 2011 2012 2013 Print Rs/$ 49 53 57 Print 2014 2015 2016 Done Done Rs/S 61 85 89 X Natural Mosaic. Natural Mosaic Company (U.S.) is considering investing Rs80,000,000 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 Rs120,000,000. A pro forma income statement for the Indian operation predicts the generation of Rs11,000,000 of annual cash flow, is listed in the popup table. 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 75% 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. 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 X 2012 11,000,000 Rs 2013 11,000,000 Data table Annual cash flow (Rs) Rs (60,000,000) Initial investment (Rs) Rs Sale value (Rs) Sales revenue Cash flows for discounting (Rs) Rs Rs Rs Less cash operating expenses Gross income R$33,000,000 (14,000,000) Rs19,000,000 (3,000,000) Calculate the cash flows in Indian rupees for years 2014 through 2018 below: (Round to the nearest whole number.) Less depreciation expenses Earnings before interest and taxes Less Indian taxes at 50% 2014 11,000,000 Rs 2015 11,000,000 Rs 2016 11,000,000 Net income Rs 16,000,000 (8,000,000) R$8,000,000 3,000,000 R$11,000,000 Annual cash flow (Rs) Rs Add back depreciation Initial investment (Rs) Annual cash flow Sale value (Rs) Rs 120,000,000 Rs Rs Rs Cash flows for discounting (Rs) The net present value on this investment from the project's viewpoint is Rs. (Round to the nearest whole number.) The internal rate of return on this investment from the project's viewpoint is%. (Round to two decimal places.) b. Calculate the cash flows in U.S. dollars for years 2011 through 2013 below: (Round to the nearest whole number.) 2011 2012 8,000,000 Rs 2013 8,000,000 Net income (Rs) Rs Initial investment (Rs) Rs (60,000,000) Dividends received in the U.S. (Rs) Rs Rs Sale value (Rs) Net cash flows to parent, after-tax (Rs) Rs Rs Rs Expected exchange rate (Rs/S) 49 53 57 Net cash flows to parent, after-tax (5) Calculate the cash flows in U.S. dollars for years 2014 through 2016 below: (Round to the nearest whole number.) 2016 2014 8,000,000 Rs 2015 8,000,000 Rs Net income (Rs) Rs 8,000,000 Initial investment (Rs) Dividends received in the U.S. (Rs) Rs Rs Rs Sale value (Rs) Rs 120,000,000 Net cash flows to parent, after-tax (Rs) Rs Rs Rs Expected exchange rate (Rs/S) 61 85 69 Net cash flows to parent, after-tax ($) The net present value on this investment from the parent's viewpoint is $ (Round to the nearest dollar.) The internal rate of return on this investment from the parent's viewpoint is%. (Round to two decimal places.) Data table 2011 2012 2013 Print Rs/$ 49 53 57 Print 2014 2015 2016 Done Done Rs/S 61 85 89 X