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ACT 4215 International Finance GROUP 8 SEMESTER 1 2019/2020: Report

This document contains details of a group assignment on international capital budgeting for ACT 4215 International Finance. The group members and lecturer are listed. It also contains an analysis of a potential investment project in New Zealand for Nestle Corporation over 3 years. The net present value of the project's cash flows is calculated to be NZ$3,860,185 using a 20% discount rate. As the NPV is positive, the summary concludes that Nestle should accept the project.

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Tivinesh Morgan
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203 views3 pages

ACT 4215 International Finance GROUP 8 SEMESTER 1 2019/2020: Report

This document contains details of a group assignment on international capital budgeting for ACT 4215 International Finance. The group members and lecturer are listed. It also contains an analysis of a potential investment project in New Zealand for Nestle Corporation over 3 years. The net present value of the project's cash flows is calculated to be NZ$3,860,185 using a 20% discount rate. As the NPV is positive, the summary concludes that Nestle should accept the project.

Uploaded by

Tivinesh Morgan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ACT 4215

INTERNATIONAL FINANCE
GROUP 8 SEMESTER 1 2019/2020

REPORT:
GROUP ASSIGNMENT (INTERNATIONAL CAPITAL BUDGETING)

LECTURER:
DR. Bany Ariffin Bin Amin Noordin
GROUP:

NAME MATRIX NUMBER

TIVINESH MORGAN 194822

LUTFIL AMIN BIN MOHD SUHAIMI 193420

IDRIS BIN EBI SHAHRIN 193835

RIFQI MUHAMMAD FARHAN 195415

FARIS DINAN RASIKHAN 195419

DANIAL BIN ISMAIL 193400

a. Determine the net present value of this project and should Nestle accept this
project.
Capital Budgeting Analysis:  Nestle Corporation

Year 1 Year 2 Year 3

1. Demand 40,000units 50,000units 60,000units

2. Price per unit NZ$500 NZ$511 NZ$530

3. Total revenue = (1) × (2) NZ$20,000,000NZ$25,550,000 NZ$31,800,000

4. Variable cost per unit NZ$30 NZ$35 NZ$40

5. Total variable cost = (1) × (4) NZ$1,200,000 NZ$1,750,000 NZ$2,400,000

6. Fixed cost NZ$6,000,000 NZ$6,000,000 NZ$6,000,000

7. Interest expense of New

Zealand loan NZ$2,800,000 NZ$2,800,000 NZ$2,800,000

8. Noncash expense (depreciation) NZ$5,000,000 NZ$5,000,000 NZ$5,000,000

9. Total expenses = (5)+(6)+(7)+(8) NZ$15,000,000NZ$15,550,000 NZ$16,200,000

10. Before-tax earnings of subsidiary

= (3)–(9) NZ$5,000,000NZ$10,000,000 NZ$15,600,000

11. Host government tax (30%) NZ$1,500,000 NZ$3,000,000 NZ$4,680,000

12. After-tax earnings of subsidiary NZ$3,500,000 NZ$7,000,000 NZ$10,920,000

13. Net cash flow to subsidiary

= (12)+(8) NZ$8,500,000NZ$12,000,000 NZ$15,920,000

14. NZ$ remitted by sub.


(100% of CF) NZ$8,500,000NZ$12,000,000 NZ$15,920,000

15. Withholding tax imposed on

Remitted funds (10%) NZ$850,000 NZ$1,200,000 NZ$1,592,000

16. NZ$ remitted after withholding

taxes NZ$7,650,000NZ$10,800,000 NZ$14,328,000


17. Salvage value NZ$52,000,000

18. Exchange rate of NZ$ $.52 $.54 $.56

19. Cash flows to parent $3,978,000 $5,832,000 $37,143,680

20. PV of parent cash flows

(20% of discount rate) $3,315,000 $4,050,000 $21,495,185

21. Initial investment by parent–$25,000,000

22. Cumulative NPV of cash flows –$21,685,000 –$17,635,000 $3,860,185

The process of calculate PV of parent cash flow and NPV;

NPV = -$25,000,000 + $3,978,000 + $5,832,000 + $37,143,680

(1+20%) 1 (1+20%)2 (1+20%)3

= -$25,000,000 + $3,315,000 + $4,050,000 + $21,495,185

= $3,860,185

As a result, the net present value of this project is $3,860,185. Thus, Nestle
Corporation should accept this project.

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