Problem set #6 Lou

.xlsx
Characteristics of Proposed Project U.S. U.K. Australia Canada Mean of Expected Returns 20% 20% 25% 30% 15% Standard Deviation 10% 9% 11% 13% 8% Correlation Coefficient 1 0.8 0.02 -0.05 0.3 Portfolio Weight of Each Portfolio Weighted Return A 70% 30% 20.0% B 50% 50% 22.500% C 60% 40% 24.00% D 55% 45% 17.7500% Existing Business 0.005 0.0055 0.006 0.0065 0.007 0.0075 0.008 0.0085 0.009 0 0.05 0.1 0.15 0.2 0.25 0.3 0.2 0.225 0.24 0.1775 Portfolio Return vs. Variance (Risk) Portfolio Variance Weighted Average Return
Portfolio Variance 0.8653% 0.5635% 0.5992% 0.5509%
Factor Year 0 Year 1 Demand 40,000 Price per Unit NZD 500 Total Revenues NZD 20,000,000 Variable Cost per Unit NZD 30 Total Variable Cost NZD 1,200,000 Annual interest payments 14% NZD 2,800,000 Other fixed annual expenses NZD 6,000,000 Non-cash expenses- (depreciation) NZD 5,000,000 Total Expenses NZD 15,000,000 Before-tax earnings of subsidiary NZD 5,000,000 Host Government tax 30% NZD 1,500,000 After-tax earnings of subsidiary NZD 3,500,000 Remitted by subsidiary NZD 8,500,000 Withholding tax on remitted funds 10% NZD 850,000 ₤remitted after withholding taxes NZD 7,650,000 Salvage value Exchange rate of NZD $ 0.52 Cash flows to parent $ 3,978,000 PV of parent cash flows 20% $ 3,315,000 Initial investment by parent $ 25,000,000 Cumulative NPV $ (21,685,000)
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