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Suppose that Kittie Co. is a U.S. based MNC that is considering setting up a subsidiary in Singapore. Kittle would like this subsidiary to produce

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Suppose that Kittie Co. is a U.S. based MNC that is considering setting up a subsidiary in Singapore. Kittle 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 Co. managers provide you key information regarding the project. 1. The government in Singapore will tax any remitted earnings at a rate of 10.00% 2. The subsidiary will remit all of it's after tax earnings back to the parent. 3. The forecasted exchange rate of the Singapore dollar over the four-year period is $0.50, 4. The salvage value is S$12,000,000, which will be paid by the Singapore government in exchange for ownership of the subsidiary after four years. 5. The required rate of return is 15.00% Furthermore, no funds can be remitted from the subsidiary to the parent until the subsidiary is sold for the salvage value at the end of the project. In short, those funds are blocked. Until then, all funds from the subsidiary will be invested in securities that yield a 5.00% return net of taxes per year, The following table shows a subsection of Kittle's capital budgeting analysis, Comiin 4C) of the table, filling in the amount of Singapore dollars remitted in year 4 for each of the cash flows from years 1-3. Then Sin the amount of Singapore Furthermore, no fundo can be remitted from the subsidiary to the parent until the subsidiary sold for the salvage value at the end of the proyed. In short, those funds are blocked. Until then, all funds from the subsidiary will be invested in securities that yield a 5.00% return net of taxes per year The following table shows a subsection of Kittle's capital budgeting analysis 0 Yea Complete rows (149)-(140) of the table, filling in the amount of Singapore dollars remitted in year for each of the cash flows from years 1-3. There complete row (140), Milling in the total S$ accumulated from investing these blocked funds, Next complete row (15), filling in the amount of Singapore dollars withheld for taxes and the total after tax Singapore dollars to be remitted to the parent in row (16). Then, calculate and enter the resulting U.S. dollar cash flows to the parent in row (19). Note: Do not forget to account for the salvage value in row (19). Year Year 1 Year 2 14. S$ to be Remitted by Subsidiary S$6,000,000 S$6,000,000 587,50 14a Year 1 Cash Flow Remitted in Year 4 0 5.00% SS 14b. Year 2 Cash Flow Remitted in Year 45.00% 58 SS 14. Year 3 Cash Flow Remitted in Year 4 5.00% 14d. Total Accumulated Funds over 4 years 15. Tax Withholding of Remitted Funds 10.00% 16. SS Remitted After Tax Withholdings 1 Salvar Value Come rows (14)-(14) of the table, filling in the amount of Singapore dollars remitted in your 4 for each of the cash flows from years. Then complete row (14d), filling in the total sacarlated from investing these blocked funds. Next, complete row (1S), Alting in the amount of Sinapore dollars withheld for taxes and the total after-tax Singapore dollars to be mornitted to the parent in row (16). Then, calculate and enter the resulting U.S. dollar cash flows to the parent in row (19). Note: Do not forget to account for the salvage value in row (19). Year 0 Year 1 Year 2 S$6,000,000 Year 557,60 S$6,000,000 5$ SS 5$ 14. Ss to be Remitted by Subsidiary 14a Year I Cash Flow Remitted in Year 45.00% 14b. Year 2 Cash Flow Remitted in Year 4 5.00% 14. Year 3 Cash Flow Remitted in Year 45.00% 14d. Total Accumulated Funds over 4 years 15. Tax Withholding of Remitted Funds 10.00% 16. SS Remitted After Tax Withholdings 17. Salvage Value 18. Exchange Rate of 55 19. Cash Flows to Parent ((16) +(17) X (18) W(15), Filing in the amount of Singapore - Singapore dollars to be remitted to the parent in row (16). Then, calculate and enter the resulting 79) age value in row (19). Year 0 Year 1 Year 3 S$6,000,000 Year 2 S$6,000,000 5$7,600,000 Year 4 S$3,400,000 S$ P 5.00% 5.00% 5.00% 5$ 5$ SS 10.00% SS S$ S$12,000,000 $0.50 18) TOTAL SCORE: 0/2

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