• The Company has sufficient capacity to accommodate the PH business expansion within the first 12 months. However, it still needs to allocate the depreciation cost to the PH business in the first year.

• - Furthermore, the Company requires an extra investment of 4.7 million USD for a new production line in year 2. The Company's general practice is to depreciate any investment over 10 years using the straight-line depreciation method.

• - The Company will need an initial working capital of 4 million USD to run the business in PH to cover the expenses to rent the office, hire employees, and advertise the product in PH.

• - KD is considering borrowing the funds required for the working capital investment and the extra investment in year 2. As an intern of the Company, FD has requested you to analyse different alternatives and suggest the best market to borrow. Should the Company borrow from the VN market or the PH market?

• The project start date is April 01, 2022. Assuming the project will be terminated at the end of Year 5, when the business in PH will be sold to the PH company, MKD requires calculating the resale value of the business after 5 years. The FD has requested you to provide a calculation for this as well. You should mention your assumptions and justify your calculations.

• - Price and demand information is given in Exhibit 1. The MKD also considers how to raise prices based on the inflation in PH.

• - In addition, the SD also expects to achieve growth in demand for the products in the PH market. As the finance intern, you should research and propose an appropriate inflation rate and growth rate for MKD that can be achieved in the PH market during the period of the project. You should justify all your calculations and mention your assumptions.

• - All costs (fixed and variable) are paid in PHP (Philippine Peso), and the interest cost will be determined depending on which country they would borrow from.

• - All cash flows received by the subsidiary will be sent to the parent company (MKD in Vietnam) at the end of each year. The subsidiary will use its working capital to support ongoing operations.

• - Assume no Withholding Tax (WHT). Assume MKD has to pay the regular corporate income tax as

  per the current regulation in PH, and there is no tax to pay in Vietnam for the earnings received from PH.

PH: Philippines

Question

Determine the net present value (NPV) of this project from the parent companys perspective and assume the Company will remain unhedged. Should MKD proceed with this project? You should clearly state your assumptions and justify your assumptions with valid research-based evidence and additional data and information.