Question 5 Genting Singapore PLC is a Singapore- based regional leisure , hospitality and integrated resorts development specialist . It is the developer and owner of the Resorts World Sentosa casino resort in Singapore . Genting is considering the establishment of a subsidiary in Japan . The initial investment required from the parent is 200, 000, 000 Singapore dollars ( SGD ) . If the investment is undertaken , Genting would terminate the investment after 20 years . Genting's SGD required rate of return is 15% for investment with similar kind of risk . All cash flows generated from the subsidiary will be remitted to the parent at the end of each year . The estimated cash flows and salvage value of the Japanese subsidiary over its lifetime in Japanese yen ( JPY) are as follow :` Year Cash Inflow ( CF ) Salvage Value 1 , 000 , 000 , 000 JPY The yearly CF will grow at a constant rate of 2 to 20 5% , i.e . , the year 2 CF is 1. 05 billion JPY , the year 3 CF is 1 . 1025 billion JPY , and so on . 20 80, 000, 000 , 000 JPY The current exchange rate for J P Y' is 0. 012 SGD . ( 2 ) Suppose Genting forecasts that exchange rate for J P Y' will remain stable at 0 . 012 SGD for the next 20 years . What is the net present value of the investment in Japan ?" Should Genting establish the Japanese subsidiary ?" ( 8 marks ) ( b ) Suppose Genting believes that the purchasing power parity holds . Assume that inflation rates and interest rates are constant as follow :` Country Annual Inflation Rate Annual Interest Rate Japan 2. 0% 1. 0%0 Singapore 4. 0%0 3.5% What is Genting's exchange rate forecast for the IP Y at year 20 ? ( 6 marks ) ( C ) Suppose Genting forecasts the exchange rate for IP Y according to the information given in part ( b ) . What is the net present value of the investment in Japan ? Should Genting establish the Japanese subsidiary ?! ( 8 marks ) ( TOTAL : 22 marks)