Santa Isabel, a food company located in Chile in South America, is planning to expand its operations internationally, and is considering buying a relatively small California-based grocery chain store that specializes in South American food.

Annual revenues are expected to be a constant amount of $5,000,000 and the cost of goods, $3,000,000. General and Administrative expenses are estimated at $500,000 per year and annual depreciation expense at $500,000.

The California subsidiary will pay 80% of its accounting net profit to the parent firm, Santa Isabel, as an annual cash dividend. Chilean taxes are calculated on grossed up dividends from foreign countries, with a credit for host-country taxes already paid. The corporate income tax rate in U.S. is 30% and the tax rate in Chile is lower at 25%. Therefore, no additional income taxes will be payable in Chile.

Santa Isabel will base its valuation of the investment on after-tax dividends received at the end of each of the first three years plus a terminal value as at the end of year 3. The Chilean currency is the Chilean peso and is denoted CLP$. The exchange rate against the US dollar is as follows. The current exchange rate is CLP$ 700.00/$, and the Chilean peso is expected to depreciate by 5% each year.

Compute the expected cash flow, both in dollars and in pesos, Santa Isabel will receive at the end of the first year. (10 points)