Problem:
A US multinational is contemplating a production facility in the UK. The production will be sold locally in the UK. The cost of the facility is estimated at $150,000,000 USD. Here is other pertinent information on the project:
|
|
Year
|
|
|
1
|
2
|
3
|
4
|
|
Price per unit GBP
|
1,500
|
1550
|
1,600
|
1,800
|
|
Unit sales
|
50,000
|
180,000
|
360,000
|
500,000
|
|
Variable costs/Unit GBP
|
1,000
|
1,200
|
1,300
|
1,500
|
|
Fixed expenses GBP
|
150,000,000
|
75,000,000
|
87,000,000
|
95,000,000
|
|
Noncash expenses GBP
|
50,000,000
|
50,000,000
|
50,000,000
|
50,000,000
|
|
British tax rate
|
35%
|
35%
|
40%
|
40%
|
|
Withholding tax rate
|
10%
|
10%
|
10%
|
10%
|
|
Profit remittance %
|
10%
|
50%
|
75%
|
100%
|
|
Exchange rate $/GBP
|
1.35
|
1.45
|
1.75
|
1.35
|
The required rate of return in 12%. Examine this project form the parent's perspective. Should the project be undertaken?