Q1. Perth International Co., an Australian multinational company, forecasts 68 million Australian dollars (A$) earnings next year (i.e., year-one). It expects 58 million Chinese yuan (CNY), 42 million Indian rupees (INR) and 40 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.3568/CNY, A$0.0413/INR and A$0.6574/MYR.

Calculate the total Australian dollar (A$) cash flow for year-one. (enter the whole number with no sign or symbol)

Q2. Perth International anticipates a 5.46 per cent increase in the year-one income of its subsidiaries in year-two. It has information that the current 5.44 per cent, 7.75 per cent, 13.08 per cent and 10.43 per cent nominal interest rate in Australia, China, India and Malaysia, respectively, will remain the same in the next three years. Due to foreign currency higher nominal interest rate, subsidiaries will invest 26 per cent, 51 per cent and 39 per cent of their year-two earnings in China, India and Malaysia, respectively, for next year. Subsidiaries will remit their remaining incomes (i.e., after investment) to the Australian parent. Perth International believes in the Purchasing Power parity with considering a 2.11 per cent real interest in Australia, China, India and Malaysia to calculate the expected foreign currency value against the Australian dollar for year-two based on the year-one exchange rates A$/CNY, A$/INR, and A$/MYR.

What is the total Australian dollar (A$) cash flow for year-two? (enter the whole number with no sign or symbol)

Q3. In year-three, Perth International has a plan to expand the business in China, India and Malaysia. Consequently, it forecasts an 8.32 per cent increase in year-one earnings of its subsidiaries in year-three. Perth International anticipates 3.08 per cent, 7.06 per cent, 11.36 per cent and 9.22 per cent inflation in Australia, China, Indian and Malaysia, respectively, in year-three. It considers the Purchasing power parity to calculate the value of CNY, INR and MYR against the Australian dollar in year-three using the year-two exchange rates A$/CNY, A$/INR, and A$/MYR.

Note that investment of subsidiaries in year-two will be matured in this year and include these investment proceeds to the year-three cash flow. It means each subsidiary’s year-three cashflow is year-three earnings and year-two investment proceeds.

What is the total Australian dollar (A$) cash flow for year-three? (enter the whole number with no sign or symbol)

Q4. The subsidiaries of Perth International remit their earnings and investment proceeds to the Australian parent at the end of each year. The annual weighted average cost of capital or required rate of return of Perth International is 6.07 per cent.

Calculate the current value of the Perth International Co. using its expected cash flows in year-one, year-two and year-three. (enter the whole number with no sign or symbol).

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(Please post ALL 4 answers with working on paper clearly written.)

Case Analysis 3: You are the General Manager at the Bicker, Slaughter, and Lynch Law Firm. There is an opportunity to buy out a small law firm that was just started by a young MBA/JD, and you believe the firm can be grown and become a lucrative part of your Firm. With help from your finance leader, you have estimated the following benefit streams for this new division:

Before Tax Cash Flow From Operations

Year 1 $(149,000)

Year 2 $0

Year 3 $51,380

Year 4 $88,760

Year 5 $114,100

Year 6 $129,780

Year 7 $143,640

Year 8 $167,300

After Tax Net Income From Operations

Year 1 $(103,500)

Year 2 $(50,500)

Year 3 $36,700

Year 4 $63,400

Year 5 $81,500

Year 6 $92,700

Year 7 $102,600

Year 8 $119,500

After Tax Cash Flow From Operations

Year 1 $(85,600)

Year 2 $15,000

Year 3 $48,600

Year 4 $72,200

Year 5 $95,550

Year 6 $101,300

Year 7 $125,200

Year 8 $140,200

You estimate that the purchase price for this firm would be $200,000 and that additional net working capital would be needed in the amount of $60,000 in year 0, an additional $15,000 in year 2 and then $15,000 in year 5.

• BSL usually spend about $275,000 per year in advertising. If you make this acquisition, you would ask that advertising spending be increased by an incremental one-time amount of $45,000 in year 0 to publicize the firm’s expansion.

• Your finance leader has indicated that the firm has access to a credit line and could borrow the funds at a rate of 6%. He also mentions that when he runs project economics for capital budgeting (such as a new copier or a company car), he recommends a standard 10% rate discount, but the one other time they looked at an acquisition of a smaller firm, he used a 13% rate discount. Obviously you will want to select the most appropriate discount rate for this type of project.

• At the end of 8 years, the plan is to sell this division. The estimated terminal value (the sale and the return of working capital) is conservatively estimated to be $350,000 of after-tax cash flow help.

Using the data that you need (and ignoring the extraneous information), for this potential acquisition, calculate each of the following items: the Nominal Payback, the Discounted Payback, the Net Present Value, the IRR.

In an MS Word document, in paragraph form, respond to the following questions:

1) From a purely financial (numbers) perspective, would you recommend this purchase to management? Why?

2) What are some of the non-financial elements that need to be considered for this proposal?

3) Assumptions in project economics can have a huge impact on the result. Identify 3 financial elements/assumptions in your analysis that would make this project financially unattractive? In other words, what would have to be true for this to be a bad investment?

4) If you were the CEO, would you approve this proposal? Why or why not?

1)

Advance International Co., an Australian multinational company, forecasts 63 million Australian dollars (A$) earnings next year (i.e., year-one). It expects 57 million Chinese yuan (CNY), 47 million Indian rupees (INR) and 36 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.2140/CNY, A$0.0340/INR and A$0.6039/MYR.

Calculate the total Australian dollar (A$) cash flow for year-one. (enter the whole number with no sign or symbol)

2)

Advance International anticipates a 4.22 per cent increase in the year-one income of its subsidiaries in year-two. It has information that the current 4.91 per cent, 8.65 per cent, 13.61 per cent and 10.91 per cent nominal interest rate in Australia, China, India and Malaysia, respectively, will remain the same in the next three years. Due to foreign currency higher nominal interest rate, subsidiaries will invest 29 per cent, 52 per cent and 39 per cent of their year-two earnings in China, India and Malaysia, respectively, for next year. Subsidiaries will remit their remaining incomes (i.e., after investment) to the Australian parent. Advance International believes in the Purchasing Power parity with considering a 2.06 per cent real interest in Australia, China, India and Malaysia to calculate the expected foreign currency value against the Australian dollar for year-two based on the year-one exchange rates A$/CNY, A$/INR, and A$/MYR.

What is the total Australian dollar (A$) cash flow for year-two? (enter the whole number with no sign or symbol)

3)

In year-three, Advance International has a plan to expand the business in China, India and Malaysia. Consequently, it forecasts an 9.79 per cent increase in year-one earnings of its subsidiaries in year-three. Advance International anticipates 3.03 per cent, 7.66 per cent, 11.35 per cent and 9.17 per cent inflation in Australia, China, Indian and Malaysia, respectively, in year-three. It considers the Purchasing power parity to calculate the value of CNY, INR and MYR against the Australian dollar in year-three using the year-two exchange rates A$/CNY, A$/INR, and A$/MYR.

Note that investment of subsidiaries in year-two will be matured in this year and include these investment proceeds to the year-three cash flow. It means each subsidiary’s year-three cashflow is year-three earnings and year-two investment proceeds.

What is the total Australian dollar (A$) cash flow for year-three?

(enter the whole number with no sign or symbol)

4)

The subsidiaries of Advance International remit their earnings and investment proceeds to the Australian parent at the end of each year. The annual weighted average cost of capital or required rate of return of Perth International is 7.94 per cent.

Calculate the current value of the Advance International Co. using its expected cash flows in year-one, year-two and year-three. (enter the whole number with no sign or symbol).

A company’s year-end balance in accounts receivable is $2,000,000. The allowance for uncollectible accounts had a beginning-of-year credit balance of $30,000. An aging of accounts receivable at the end of the year indicates a required allowance of $38,000. If bad debt expense for the year was $40,000 and if credit sales for the year were $8,200,000 and $7,950,000 was collected from credit customers, what was the beginning-of-year balance in accounts receivable?

You have $1,000 to invest over an investment horizon of three years. The bond market offers various options. You can buy (i) a sequence of three one-year bonds; or (ii) a three-year bond; The current yield curve tells you that the one-year, two-year, and three-year yields to maturity are 3 percent, 4 percent, and 4.4 percent, respectively. You expect that one-year interest rates will be 4 percent next year and 5 percent the year after that. Assuming annual compounding, compute the return on each of the two investments.

Expected return for (i)=

Expected return for (ii)=