STEP: 2 of 3 Suppose that Kittie Co. is a U.S. based MNC that is considering setting up a subsidiary in Singapore. Kattle would like this subsidiary to produce and sell guitars locally in Singapore, and needs assistance with capital budgeting. The duration of this project is four years, with an initial investment of S$20,000,000 (Singapore dollars). Kittle managers have conducted a capital budgeting analysis with the assumption that the exchange rate will be $0.50 over the life of the project. However, Kittle management acknowledges the possibility that the value of the Singapore dollar will fluctuate over time. To that end, Little is considering two alternative scenarios: one in which the Singapore dollar is strong relative to the U.S. dollar and one in which the Singapore dollar in weak against the U.S. dollar The following table shows one section of Kittie's capital budgeting analysis, under the scenario where the Singapore dollar is weak relative to the U.S. dollar. However, kittle management acknowledges the possibility that the value of the Singapore dollar will fluctuate over time. To that end, te is considering two alternative scenariodone in which the Singapore dollar is strong relative to the U.S. dollar and one in which the Singapore dolor is weak against the U.S. dollar. The following table shows one section of Kittle's capital budgeting analysis, under the scenario where the Singapore dollar in weak relative to the U.S. dollar: Complete row 22 of the table, Filling in the cumulative net present value in each of the four years Note: The discounted values cash flows to the parent are rounded to the nearest dollar. Use these rounded values when calculating row (22). Year o Year 1 Year 2 Year 3 16. After Tax SS Remitted S$5,400,000 S$5,400,000 S$6,040,000 17.Salvage Value 18. Exchange Rate of S$ $0.47 $0.44 50.42 19. Cash Flows to Parent ((16) +(17)) (18) $2,538,000 $2,376,000 $2,872,800 20. PV of Parent Cash Flows @ 15.00% $2,206,957 $1,796,597 $1,888,913 21. Initial U.S. $ Investment by Parent $10,000,000 22. Cumulative NPV The following table shows one section of Kittle's capital budgeting analysis, under the scenario where the Singapore dollar is weak dative to the US dollar. in the cumulative net present value in each of the four years ows to the parent are rounded to the nearest dollar. Use these rounded values when calculating row (22). Year o Year 2 Year 1 S$5,400,000 Year 3 S$6,840,000 S$5,400,000 Year 4 5$7,560,000 5$12,000,000 $0.39 $0.47 $0.42 50.44 $2,376,000 17) X(18) 0096 $2,538,000 $2,206,957 $2,872,800 $1,888,913 $1,796,597 $7,628,400 $4,361,562 rent $10,000,000 A
