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 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 the project However, Kittle management acknowledges the possibility that the value of the Singapore dollar will fluctuate over time. To that end, Kittle 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 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 is weak relative to the U.S. dollar. e, filling in the cumulative net present value in each of the four years s 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 Year 4 S$5,400,000 S$5,400,000 S$8,424,000 S$9,288,000 S$12,000,000 $0.47 $0.44 $0.42 $0.39 (16) +(17)] X(18) $2,538,000 $3,538,080 $2,376,000 $1,796,597 $8,302,320 $4,746,878 Is @ 15.00% $2,206,957 $2,326,345 nt by Parent $10,000,000 Grade Step 2 TOTAL SCORE: 0/3 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 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 the project However, Kittle management acknowledges the possibility that the value of the Singapore dollar will fluctuate over time. To that end, Kittle 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 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 is weak relative to the U.S. dollar. e, filling in the cumulative net present value in each of the four years s 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 Year 4 S$5,400,000 S$5,400,000 S$8,424,000 S$9,288,000 S$12,000,000 $0.47 $0.44 $0.42 $0.39 (16) +(17)] X(18) $2,538,000 $3,538,080 $2,376,000 $1,796,597 $8,302,320 $4,746,878 Is @ 15.00% $2,206,957 $2,326,345 nt by Parent $10,000,000 Grade Step 2 TOTAL SCORE: 0/3
