Question

Company B wants to compare the investment in three different countries based on the following information. Tax rate is 30% for all three countries. MARR is 9% compounded quarterly.

	Country 1	Country 2	Country 3
Depreciation method	SL with n=5	MACRS with n=3	DDB with n=5
Depreciation recapture	Not taxed	Taxed as T.I.	Taxed as T.I.
Purchase cost	100,000	100,000	100,000
Gross Income	26,000	27,000	29,000
Expense	1,000	2,000	4,000
Salvage	0	0	20,000
Life in years	5	5	5
Actual selling price	20,000 in year 5	20,000 in year 5	20,000 in year 5

1. Determine the CFAT for the above three countries.
2. Perform a PW Analysis and make a recommendation of which country should the company choose to invest.

Solve using Excel. Thanks in advance!

Answer 1

The company should invest in Country 1 as it has the highest NPV of $3496.52 out of the three countries

Cash Flows (CFAT) of Country 1 are given below

Cash Flows (CFAT) of Country 2 are given below

Cash Flows (CFAT) of Country 3 are given below

Please note: depreciation for year 5 in Country 3 is Salvage Value - Beginning Value of the Asset and not as Depreciation rate * Ending Value of the Asset

Depreciation for year 5 = 11,000 - 12,960
= 1960