Havel Robotics Company (a U.S-based firm) is considering establishing a subsidiary in China to assemble industrial robots on January 1, Year 1. If Havel makes the investment, it will operate the plant for one year and then sell the building and equipment to Chinese investors. 1. The initial investment would be $1,000. 2. Havel will repatriate 100% of the estimated net operating cash flows as dividend which is ¥ 3,000. The terminal value is ¥ 6,000. The China withholding tax is 10% on dividends and the terminal value. Neither the dividends nor the terminal value will be subject to U.S. income tax. 3. Havel uses a 16% discount rate. The present value factor is 0.862 for the end of Year 1. 4. The exchange rate between the RMB and the US$ is expected to be ¥ 6.7=$1 on Jan. 1, Year 1 and ¥ 6.8 =$1 on Dec. 31. Year 1. What is the net present value of the investment from a parent company perspective? O $27 O $5,982 $141 O $191
Havel Robotics Company (a U.S-based firm) is considering establishing a subsidiary in China to assemble industrial robots on January 1, Year 1. If Havel makes the investment, it will operate the plant for one year and then sell the building and equipment to Chinese investors. 1. The initial investment would be $1,000. 2. Havel will repatriate 100% of the estimated net operating cash flows as dividend which is ¥ 3,000. The terminal value is ¥ 6,000. The China withholding tax is 10% on dividends and the terminal value. Neither the dividends nor the terminal value will be subject to U.S. income tax. 3. Havel uses a 16% discount rate. The present value factor is 0.862 for the end of Year 1. 4. The exchange rate between the RMB and the US$ is expected to be ¥ 6.7=$1 on Jan. 1, Year 1 and ¥ 6.8 =$1 on Dec. 31. Year 1. What is the net present value of the investment from a parent company perspective? O $27 O $5,982 $141 O $191
Chapter16: Country Risk Analysis
Section: Chapter Questions
Problem 5ST
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT