Suppose that Kittle 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 a salvage value of $$12,000,000.$ This salvage value would be paid by the government in Singapore to Kittle in exchange for ownership of the subsidiary. The expected exchange rate of the Singapore dollar of $$0\mathrm{.}50$ over the life of the project.

Kittle managers are worried about the uncertainty of the value of the Singapore dollar. While they expect that the exchange rate will be $$0\mathrm{.}50,$ they recognize that this value may fluctuate. Thus, they decide to S$$4,000,000$ in cash flows per year, while any additional cash flows beyond this threshold would not be hedged. The forward rate that Kittle will use to hedge the S$$4,000,000$ is $$0\mathrm{.}48.$

The following table shows a key subsection of Kittle$$s capital budgeting analysis that is affected by this hedging strategy.

Complete row $(19$a$),(19$b$),$ and $(19$c$)$ of the table, filling in the hedged, unhedged, and total cash flows to the parent $($respectively$)$ in each of the four years

Hint: Do not forget to account for the salvage value in year $4.$

$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Year $0$

Year $1$

Year $2$

Year $3$

Year $4$

$16.$ S$ Remitted After Tax Withholdings S$$5,400,000$ S$$5,400,000$ S$$6,840,000$ S$$7,560,000$

$16$a$.$ Hedged After$-$Tax S$ Cashflows S$$4,000,000$ S$$4,000,000$ S$$4,000,000$ S$$4,000,000$

$16$b$.$ Unhedged S$ Cashflows $(16)-(16$a$)$ S$$1,400,000$ S$$1,400,000$ S$$2,840,000$ S$$3,560,000$

$17.$ Salvage Value S$$12,000,000$

$18$a$.$ Forward Rate on S$ $$0\mathrm{.}48$ $$0\mathrm{.}48$ $$0\mathrm{.}48$ $$0\mathrm{.}48$

$18$b$.$ Expected Future Spot Rate on S$ $$0\mathrm{.}50$ $$0\mathrm{.}50$ $$0\mathrm{.}50$ $$0\mathrm{.}50$

$19$a$.$ Hedged Cash Flows to Parent $

$

$

$

$19$b$.$ Unhedged Cash Flow to Parent $

$

$

$

$19$c$.$ Total Cashflow to Parent $

$

$

$