Question

In: Finance

*Excel formulas needed* A U.S.-based firm is considering a six- year project in Colombia. The following...

*Excel formulas needed* A U.S.-based firm is considering a six- year project in Colombia. The following information is available about the project: Initial investment. The initial investment of USD 750,000 is used to purchase capital equipment. This equipment will be depreciated straight line to zero. At the end of six years, the remaining equipment will be sold for Colombian Peso (COP) 25,000,000. Working capital. The investment in working capital is COP 100,000,000. There are no changes in working capital until the end of the project when the full amount is recovered. Units, price, and costs. The firm will produce 2000 units of a product annually. The selling price is expected to be COP 599000 in the first year. This price is expected to increase at a rate of 4 percent annually. The direct expense per unit is expected to be COP 200000 in the first year. This is expected to increase at a rate of 5 percent annually. Indirect expenses are expected to be COP 50,000,000 annually. Taxes and miscellaneous. Colombian taxes on income and capital gains are 34 percent. There are no additional withholding taxes. All cash flows are repatriated when generated, and there are no additional U.S. taxes. The parity conditions are assumed to hold between Colombia and the United States. The relevant inflation indexes indicate a rate of 3 percent for the United States and 6 percent for Colombia. Spot USDCOP equals 3300. Brady’s USD denominated WACC is 12 percent.

c. Use parity conditions to generate future spot rates. Calculate the project NPV in USD.

EXCEL FORMULAS only please. It will be incorrect if not run through Excel.

Thanks in advanced!

Solutions

Expert Solution

Next year spot rate = current year spot rate * ((1 + 6%) / (1 + 3%))

OCF in each year = income after tax + depreciation

NPV is calculated using NPV function in Excel

USD NPV is $2,312


Related Solutions

*Excel formulas needed* A U.S.-based firm is considering a six- year project in Colombia. The following...
*Excel formulas needed* A U.S.-based firm is considering a six- year project in Colombia. The following information is available about the project: Initial investment. The initial investment of USD 750,000 is used to purchase capital equipment. This equipment will be depreciated straight line to zero. At the end of six years, the remaining equipment will be sold for Colombian Peso (COP) 25,000,000. Working capital. The investment in working capital is COP 100,000,000. There are no changes in working capital until...
*Excel formulas needed* A U.S.-based firm is considering a six- year project in Colombia. The following...
*Excel formulas needed* A U.S.-based firm is considering a six- year project in Colombia. The following information is available about the project: Initial investment. The initial investment of USD 750,000 is used to purchase capital equipment. This equipment will be depreciated straight line to zero. At the end of six years, the remaining equipment will be sold for Colombian Peso (COP) 25,000,000. Working capital. The investment in working capital is COP 100,000,000. There are no changes in working capital until...
A U.S.-based firm is considering a five- year project in Colombia. The following information is available...
A U.S.-based firm is considering a five- year project in Colombia. The following information is available about the project: Initial investment. The initial investment of USD 750,000 is used to purchase capital equipment. This equipment will be depreciated straight line to zero. At the end of five years, the remaining equipment will be sold for Colombian Peso (COP) 12,000,000. Working capital. The investment in working capital is COP 180,000,000. There are no changes in working capital until the end of...
*Excel formulas needed* A Canadian firm is evaluating a project in the United States. This project...
*Excel formulas needed* A Canadian firm is evaluating a project in the United States. This project involves the establishment of a lumber mill in Wisconsin to process Canadian timber. The factory expects to service clients in the construction industry. All cash flow figures are in thousands. Initial Investment. The initial investment is CAD 60,000. The project is over a period of three years. This investment will be depreciated straight line to zero. Operating Results. The firm expects two likely scenarios...
Brady, a U.S.-based firm, is considering a three-year project in China.         The following information is...
Brady, a U.S.-based firm, is considering a three-year project in China.         The following information is available about the project: The project is for 3 Initial capital expenditure is CNY180,000. You will depreciate this cost over 3 years using SL to zero. Pre-tax salvage value at year 3 is expected to be CNY60,000. Brady expects to sell 40,000 units/year at a price of CNY4/unit, variable cost = CNY1/unit. Fixed costs are estimated to be CNY5,000/year. Net working capital is estimated...
(IN EXCEL PLEASE/ With formulas shown) Engineering economics A firm is considering purchasing a machine that...
(IN EXCEL PLEASE/ With formulas shown) Engineering economics A firm is considering purchasing a machine that costs ​$65000. It will be used for six​ years, and the salvage value at that time is expected to be zero. The machine will save ​$35000 per year in​labor, but it will incur ​$12000 in operating and maintenance costs each year. The machine will be depreciated according to​ five-year MACRS. The​ firm's tax rate is 40%, and its​ after-tax MARR is 15%. Should the...
Redy Tody, an Indian- based pharmaceutical firm, is considering a project in Canada. The following table...
Redy Tody, an Indian- based pharmaceutical firm, is considering a project in Canada. The following table lists foreign currency (CAD) cash flows. The CAD is currently trading at CADINR equals 50. Assume that future spot rates are equal to the current spot rate. The WACC of the firm is 11 percent. Year                       Cash Flows (CAD) 0                           -200,000 1– 4                       50,000 5                            100,000 Calculate the NPV of the project in INR.
Full answer needed with Excel formulas Lockheed, one of the largest defense contractors in the United...
Full answer needed with Excel formulas Lockheed, one of the largest defense contractors in the United States, reported EBITDA of $1,290 million in a recent financial year, prior to interest expenses of $215 million and depreciation charges of $400 million. Capital expenditures amounted to $450 million during the year, and working capital was 7% of revenues (which were $13,500 million). The firm had debt outstanding of $3,068 billion (in book value terms), trading at a market value $3.2 billion, and...
use excel and show formulas A piece of equipment will cost $325,000 new, have a six...
use excel and show formulas A piece of equipment will cost $325,000 new, have a six year life and a salvage value of $100,000. Maintenance costs are $30,000 for year 1 and increase at the rate of 6% per year. Determine the annual cost of this machine if i=12%
A firm is considering investing in a project with the following cash flows: Year 1 2...
A firm is considering investing in a project with the following cash flows: Year 1 2 3 4 5 6 7 8 Cash flow (OMR) 1,000 1,500 2,000 1,750 1,500 1,000 1,000 500 The initial investment is OMR 7,250. The firm has a required rate of return of 8 per cent. Calculate: The payback period;    The discounted payback; The net present value.   
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT