weuld manufactare and will teanis rackete locally. Sportee's masapemcat has ackes various depactivents so sipply relezant informaticen for a capiul bodpeting anulysis. In adition, some whociary. The fillewing information is relevatre - Ininial imvestment An eatmosed bo milbon Singapore dollars is5), which inclades funds a - Preject life. The project is espocted to sod an feur yean. The host perernenti el Singapone has premised to furchase the plast frum the parcrt atter four years. Other Casts: The espense of leases estra office space w \$S 2 millien par year. Othar anneal ererthead expenses ase espected so be Ss 2 million per yeaf. - Buchange rates The sont euchange rate of the Siagapore dollar is $40. Sporter uses the spof rate an its best forecaut of the enchange rate that will exise in fiture periods. will impore a lor, witholding tex on any fuadu neminiod by the nubuidiary be the Other Case: The experse of leasing cetra office space in 551 million par year. Other asmal 4 Huchange rutes. The spot exchange rate ef the Siagapere dollar is $50. Sportee usen the spot. tale as its fest foweut of the eacharige tate tut will exist in future periads. 11 +20 - Lis geveremiet tases en iename earned by Sperter sabsitiary: The Lis governmen will to treved ty the dis yowernm. - Cash flews frem Spertee subsdiary to parene: The Specter subsidary plass te setal all act cavh flows recened back to the parent firm at the cnd of each yea. The Sayapee goverameat wietholding ux en any fends renined as merriosid ubwe. of the plant and equipment at a masimem rase of is 4 milise por year, which in the rite the sabbidiary would use. mbodiary. Adithinal Torermatina: 5ponting incoporated han a Beta ef 1.75 and the market expect a reture of 12%. The risk free rife is k. The company wish to fond this imvertment usine its rctained carningi. MEQ4 IRN: 2 ? Detemuine the Net Present Value iNPVi of this project. Sbodat Sportee accept this project? Term Abiagmeal Deadlias: 9 Sepacmlecr Neak Marks: 10 marks subvidiary. The folkwing information is selevant. suppost waking caperat, world he accokt ior the preject. gromaced ia perchase the planil finom the purere after four years. averticad evenenses are erpeciod to be S5 2 mitton per year wull anpose a ft, withboldng tax we any fands temined by the inheidery ter the avertwad eqpenes are especiad to be is 2 mitio per year wall arrpose a 10f, withbolding tax een any fandy remitied by the abcidary to the puram be tased by the U.S peverfariat. withbiling 12x on any finds ramitiod as nantivend ahove. be taxed by the ti: $ pewernamerat. autoidiary 'vould use. of the subeidiary at the end of the four years. Amame ther is no captal gane ar en the alc of the autaidiary: sctaifod car-ings. HEQTaRE Sportee Inc., a U.S based MNC is consideriag the developenent of a subsidiary in Singapere that would manufacture and sell tennis rackets locally. Sportee's management has asked various departments to supply relevant information for a capital budgeting analysis. In addition, some Sportee executives have met with government officials in Singapore to discuss the proposed subsidiary. The following information is relevant: - Initial investarent: An estimated 30 million Singapore dollars (SS), which includes funds to support working capital, would be needed for the project. - Project life: The project is expected to end in four years. The host government of Singapore has promised to purchase the plant from the parent after four years. - Price, demand and variable costs. The estimated price, demand and variable costs are as follows: Other Casts: The expenve of leasing extra office space is $52 million per year. Other anneal overhead expenses are expected to be SS 2 million per year. - Exchange rates: The spot exchange rate of the Singapore dollar is $.50. Sportee uses the spot fate as its best forecast of the exchange rate that will exist in future periods. - Host government taxes on income earned by subsidiary: The Singapore government will allow Sportee Inc, to establish the subsidiary and will impose a 20% tax rate on income. In addition, it will impose a 10% withholding tax on any funds remitted by the subsidiary to the Other Cests: The expense of leasing extra office space is $52 million per year. Other annaal overhead expenses are expected to be 552 million per year. - Exchange rates: The spot exchange rate of the Singapore dollar is $.50. Sportee uses the spot rate as its best forecast of the exchange rate that will exist in future periods. - Host government taxes on income earned by subsidiary: The Singapore government will allow Sportee Inc. to establish the subsidiary and will impose a 20% tax rate en income. In additien, it will impose a 10% withholding tax on any funds remitted by the subsidiary to the parent. 1.7 a e e - U.S government taxes on income earaed by Sportee subsidiary: The U.S government will allow a tax credit on taxes paid in Singapore; therefore, eamings remitted to the U.S parent will nut be taxed by the U.S govemment. - Cash flows from Spertee subsidiary to parent: The Sportee subsidiary plans to send all net cash flows received back to the parent firm at the end of each year. The Siagapore government promises no restrictions on the cash flows to be sent back to the pareat firm but imposes a 10% withholding tax on any funds remitted as mentioned above. - U.S government taxes on income earned by Sportee subsidiary: The U.S government will allow a tax credit on taxes paid in Singapore; therefore, earnings remitted to the U.S parent will not be taxed by the U.S government. - Cash flows from Sportee subsidiary to parent: The Sportee subsidiary plans to send all net cash flows received back to the parent firm at the end of each year. The Singapore government promises no restrictions on the cash flows to be sent back to the parent firm but imposes a 10% withholding tax on any funds remitted as mentioned above. - Depreciation: The Singapore government will allow Sportee's subsidiary to depreciate the cost of the plant and equipment at a maximum rate of SS 4 million per year, which is the rate the subsidiary would use. - Salvage value: The Singapore government will pay the parent S\$18 million to assume ownership of the subsidiary at the end of the four years. Assume there is no capital gains tax on the sale of the subsidiary. Additional Information: Sporting incorporated has a Beta of 1.75 and the market expect a return of 12%. The risk free rate is 8%. The company wish to fund this investment using its retained earnings. REQUIRED: Determine the Net Present Value (NPV) of this project. Should Sportee accept this project? weuld manufactare and will teanis rackete locally. Sportee's masapemcat has ackes various depactivents so sipply relezant informaticen for a capiul bodpeting anulysis. In adition, some whociary. The fillewing information is relevatre - Ininial imvestment An eatmosed bo milbon Singapore dollars is5), which inclades funds a - Preject life. The project is espocted to sod an feur yean. The host perernenti el Singapone has premised to furchase the plast frum the parcrt atter four years. Other Casts: The espense of leases estra office space w \$S 2 millien par year. Othar anneal ererthead expenses ase espected so be Ss 2 million per yeaf. - Buchange rates The sont euchange rate of the Siagapore dollar is $40. Sporter uses the spof rate an its best forecaut of the enchange rate that will exise in fiture periods. will impore a lor, witholding tex on any fuadu neminiod by the nubuidiary be the Other Case: The experse of leasing cetra office space in 551 million par year. Other asmal 4 Huchange rutes. The spot exchange rate ef the Siagapere dollar is $50. Sportee usen the spot. tale as its fest foweut of the eacharige tate tut will exist in future periads. 11 +20 - Lis geveremiet tases en iename earned by Sperter sabsitiary: The Lis governmen will to treved ty the dis yowernm. - Cash flews frem Spertee subsdiary to parene: The Specter subsidary plass te setal all act cavh flows recened back to the parent firm at the cnd of each yea. The Sayapee goverameat wietholding ux en any fends renined as merriosid ubwe. of the plant and equipment at a masimem rase of is 4 milise por year, which in the rite the sabbidiary would use. mbodiary. Adithinal Torermatina: 5ponting incoporated han a Beta ef 1.75 and the market expect a reture of 12%. The risk free rife is k. The company wish to fond this imvertment usine its rctained carningi. MEQ4 IRN: 2 ? Detemuine the Net Present Value iNPVi of this project. Sbodat Sportee accept this project? Term Abiagmeal Deadlias: 9 Sepacmlecr Neak Marks: 10 marks subvidiary. The folkwing information is selevant. suppost waking caperat, world he accokt ior the preject. gromaced ia perchase the planil finom the purere after four years. averticad evenenses are erpeciod to be S5 2 mitton per year wull anpose a ft, withboldng tax we any fands temined by the inheidery ter the avertwad eqpenes are especiad to be is 2 mitio per year wall arrpose a 10f, withbolding tax een any fandy remitied by the abcidary to the puram be tased by the U.S peverfariat. withbiling 12x on any finds ramitiod as nantivend ahove. be taxed by the ti: $ pewernamerat. autoidiary 'vould use. of the subeidiary at the end of the four years. Amame ther is no captal gane ar en the alc of the autaidiary: sctaifod car-ings. HEQTaRE Sportee Inc., a U.S based MNC is consideriag the developenent of a subsidiary in Singapere that would manufacture and sell tennis rackets locally. Sportee's management has asked various departments to supply relevant information for a capital budgeting analysis. In addition, some Sportee executives have met with government officials in Singapore to discuss the proposed subsidiary. The following information is relevant: - Initial investarent: An estimated 30 million Singapore dollars (SS), which includes funds to support working capital, would be needed for the project. - Project life: The project is expected to end in four years. The host government of Singapore has promised to purchase the plant from the parent after four years. - Price, demand and variable costs. The estimated price, demand and variable costs are as follows: Other Casts: The expenve of leasing extra office space is $52 million per year. Other anneal overhead expenses are expected to be SS 2 million per year. - Exchange rates: The spot exchange rate of the Singapore dollar is $.50. Sportee uses the spot fate as its best forecast of the exchange rate that will exist in future periods. - Host government taxes on income earned by subsidiary: The Singapore government will allow Sportee Inc, to establish the subsidiary and will impose a 20% tax rate on income. In addition, it will impose a 10% withholding tax on any funds remitted by the subsidiary to the Other Cests: The expense of leasing extra office space is $52 million per year. Other annaal overhead expenses are expected to be 552 million per year. - Exchange rates: The spot exchange rate of the Singapore dollar is $.50. Sportee uses the spot rate as its best forecast of the exchange rate that will exist in future periods. - Host government taxes on income earned by subsidiary: The Singapore government will allow Sportee Inc. to establish the subsidiary and will impose a 20% tax rate en income. In additien, it will impose a 10% withholding tax on any funds remitted by the subsidiary to the parent. 1.7 a e e - U.S government taxes on income earaed by Sportee subsidiary: The U.S government will allow a tax credit on taxes paid in Singapore; therefore, eamings remitted to the U.S parent will nut be taxed by the U.S govemment. - Cash flows from Spertee subsidiary to parent: The Sportee subsidiary plans to send all net cash flows received back to the parent firm at the end of each year. The Siagapore government promises no restrictions on the cash flows to be sent back to the pareat firm but imposes a 10% withholding tax on any funds remitted as mentioned above. - U.S government taxes on income earned by Sportee subsidiary: The U.S government will allow a tax credit on taxes paid in Singapore; therefore, earnings remitted to the U.S parent will not be taxed by the U.S government. - Cash flows from Sportee subsidiary to parent: The Sportee subsidiary plans to send all net cash flows received back to the parent firm at the end of each year. The Singapore government promises no restrictions on the cash flows to be sent back to the parent firm but imposes a 10% withholding tax on any funds remitted as mentioned above. - Depreciation: The Singapore government will allow Sportee's subsidiary to depreciate the cost of the plant and equipment at a maximum rate of SS 4 million per year, which is the rate the subsidiary would use. - Salvage value: The Singapore government will pay the parent S\$18 million to assume ownership of the subsidiary at the end of the four years. Assume there is no capital gains tax on the sale of the subsidiary. Additional Information: Sporting incorporated has a Beta of 1.75 and the market expect a return of 12%. The risk free rate is 8%. The company wish to fund this investment using its retained earnings. REQUIRED: Determine the Net Present Value (NPV) of this project. Should Sportee accept this project