Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please fill in the four blanks and let me know if any are negative. I have no idea if my answers are correct or not!

please fill in the four blanks and let me know if any are negative. I have no idea if my answers are correct or not!
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
STEP: 2 of 4 Suppose that Sherman Co., a U.S.-based MNC is considering a plan to establish a subsidiary in Singapore. The MNC would establish the subsidiary using an upfront Investment of $10,000,000 and would sell the subsidiary after four years. While it is confident in the values of certain parameters of the capital budgeting analysis, there is some substantial risk in the tax rate on earnings remitted from Singapore as well as the salvage value, In particular, Sherman believes that there are two possible tax rates with the following probabilities. Possible Tax Rate Outcome Probability of Outcome 10.00% 70.00% 20.00% 30.00% 100% Additionally, Sherman believes that there are two possible salvage values with the following probabilities, Possible Salvage Value Outcome Probability of Outcome $12,000,000 60.00% $7,000,000 40.00% 100% Since there are two possible values for the tax rate, and two possible values for the salvage value, there are four total scenarios as outlined in the following table Scenario withholding Tax Salvage Value 1 10.00% S$12,000,000 2 20.00% S$12,000,000 10.00% S$7,000,000 4 20.00% S$7,000,000 Given these scenarios, Sherman seeks to estimate the expected net present value of the project in the face of this uncertainty. Suppose that the required rate of return is 15.00% for all scenarlos. The following table adds the present value of after-tax U.S. dollar cash flows to the parent and the initial investment in rows (20) and (21) (respectively) to the capital budgeting analysis, Complete row (22) of the table, filling in the cumulative net present value of the project in each year. Note: The values in row (20) are rounded to the nearest dollar. Use these rounded values when calculating the cumulative net present value Hint: Use a minus sign to indicate a negative number. Year o Year 1 Year 2 14. S$ Remitted before Taxes $6,000,000 $6,000,000 15. Taxes withheld on $ Remitted S$1,200,000 S$1,200,000 16. After-Tax S$ Remit 554,800,000 $$4,800,000 17. Salvage Value 18. Exchange Rate of ss $0.50 $0.50 19. After Tax Cash Flows to Parent 2,400,000 2,400,000 20. Present Value of Parent Cash Flows at 15.00% $2,086,957 $1,814,745 $10,000,000 21 Initial Investment 22. Cumulative NPV $7.913,043,00 $6,098,298.00 Year o Year 1 $6,000,000 S$1,200,000 5$4,800,000 Year 2 $6,000,000 S$1,200,000 5$4,800,000 Year 3 $7,600,000 S$1,520,000 S$6,080,000 Year 4 $8,400,000 S$1,680,000 S$6,720,000 $12,000,000 $0.50 9,360,000 $5,351,610 $0.50 2,400,000 $2,086,957 $0.50 2,400,000 $1,814,745 $0.50 3,040,000 $1,998,849 $10,000,000 $7.913,043.00 $6,098,298.00 $4,099,449.00 $1,252,161.00

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Smart Money Concept Forex Trading Guide

Authors: Mark K. White

1st Edition

979-8358276383

More Books

Students also viewed these Finance questions

Question

Explain why net income is different from net cash flow

Answered: 1 week ago