Strange Ltd., an Entertainment industry is considering a proposal to open a new venture in mexico The company is highly successful and decide to start a new project in Mexico where it wants to build a new entertainment hub with world class amenities. The company spent $5.6 million in marketing study and the report suggest that the project will be profitable The estimated cost of construction would be 450 million pesos and it would be completed i one year Half of the construction cost will be paid in the beginning and rest at the end of year in addition. working capital requirement would be 55 million pesos from the year end one. The after tax realizable value of fixed assets after four years of operation is expected to be 200 million pesos the Foreign Capital Encouragement Policy of Mexico, company is allowed to claim 25% depreciation allowance per year on reducing balance basis subject to maximum capital limit of 150 million pesos the company can raise loan for the entertainment hub in Mexico @ 7.5%. The Entertainment hub will have a maximum capacity of 25,000 visitors per day. On an average, it is expected to achieve 70% capacity for first operational four years. The entry ticket is expected to be 250 pesos per person. In addition to entry tickets revenue, the company could earn revenue from sale of food and beverages and fancy gift items. The average sales expected to be 170 pesos per visitor for food and beverages and 60 pesos per visitor for fancy gift items. The sales margin on food and beverages and fancy gift items is 25% and 55% respectively. The Hub open for 360 days a year. The annual staffing cost would be 650 million pesos per annum. The annual insurance cost would be NPR 50 million pesos. The other running and maintenance costs are expected to be 250 million pesos in the first Year of operation which is expected to increase 40 million pesos every year. The company would apportion existing overheads to the tune of 50 million pesos to the Hub. All costs and receipts (excluding construction costs, assets realizable value and other running and maintenance costs) mentioned above are at current prices (i.e. O point of time) which are expected to increase by 5.75% per year. The current spot rate is 20 pesos per dollar The tax rate in US is 21% and in Mexico it is 15%. tax rate in US is 21% and in Mexico it is 15%. The current WACC of the company is 13.46%. The average market return is 10.85% and treasury bond interest rate is 8%. The company's current equity beta is 0.487. The company's funding ratio for the entertainment hub would be 56% equity and 44% debt. Being a tourist Place, the entertainment industry in mexico is highly competitive and very different from USA The company has gathered the relevant information about its nearest competitor in Mexico. The competitor's market value of the equity is 18640 million pesos and the debt is 5100 million pesos and the equity beta is 1.48 Evaluate the possibility of accepting the project by using appropriate capital budgeting techniques . Strange Ltd., an Entertainment industry is considering a proposal to open a new venture in mexico The company is highly successful and decide to start a new project in Mexico where it wants to build a new entertainment hub with world class amenities. The company spent $5.6 million in marketing study and the report suggest that the project will be profitable The estimated cost of construction would be 450 million pesos and it would be completed i one year Half of the construction cost will be paid in the beginning and rest at the end of year in addition. working capital requirement would be 55 million pesos from the year end one. The after tax realizable value of fixed assets after four years of operation is expected to be 200 million pesos the Foreign Capital Encouragement Policy of Mexico, company is allowed to claim 25% depreciation allowance per year on reducing balance basis subject to maximum capital limit of 150 million pesos the company can raise loan for the entertainment hub in Mexico @ 7.5%. The Entertainment hub will have a maximum capacity of 25,000 visitors per day. On an average, it is expected to achieve 70% capacity for first operational four years. The entry ticket is expected to be 250 pesos per person. In addition to entry tickets revenue, the company could earn revenue from sale of food and beverages and fancy gift items. The average sales expected to be 170 pesos per visitor for food and beverages and 60 pesos per visitor for fancy gift items. The sales margin on food and beverages and fancy gift items is 25% and 55% respectively. The Hub open for 360 days a year. The annual staffing cost would be 650 million pesos per annum. The annual insurance cost would be NPR 50 million pesos. The other running and maintenance costs are expected to be 250 million pesos in the first Year of operation which is expected to increase 40 million pesos every year. The company would apportion existing overheads to the tune of 50 million pesos to the Hub. All costs and receipts (excluding construction costs, assets realizable value and other running and maintenance costs) mentioned above are at current prices (i.e. O point of time) which are expected to increase by 5.75% per year. The current spot rate is 20 pesos per dollar The tax rate in US is 21% and in Mexico it is 15%. tax rate in US is 21% and in Mexico it is 15%. The current WACC of the company is 13.46%. The average market return is 10.85% and treasury bond interest rate is 8%. The company's current equity beta is 0.487. The company's funding ratio for the entertainment hub would be 56% equity and 44% debt. Being a tourist Place, the entertainment industry in mexico is highly competitive and very different from USA The company has gathered the relevant information about its nearest competitor in Mexico. The competitor's market value of the equity is 18640 million pesos and the debt is 5100 million pesos and the equity beta is 1.48 Evaluate the possibility of accepting the project by using appropriate capital budgeting techniques