$4.$ Noble Robotics Company $($a U$.$S$.-$based firm$)$ exports $25,000$ industrial robots per year to China under an agreement that covers a $5-$year period. In China, the robots are sold for the RMB $($Chinese currency$)$ equivalent of $$50$ per unit. The total costs in the United States are direct manufacturing costs and shipping costs, which amount to $$35$ per unit. The market for industrial robots in China is stable, and Noble holds the major portion of the market.

In $2020,$ the Chinese government, adopting a policy of replacing imported robots with local products, invited Noble to open an assembly plant in China. If Noble makes the investment, it will operate the plant for $5$ years and then sell the building and equipment to Chinese investors at net book value $($cost less accumulated depreciation$)$ at the time of sale plus the current amount of any working capital. Noble will be allowed to repatriate $100\%$ of cash flow from operations $($net income plus depreciation$)$ to the United States each year.

Noble$$s anticipated outlay in $2020$ would be $$1,500,000($buildings and equipment, $$750,000,$ and working capital, $$750,000).$ Buildings and equipment will be depreciated over $5$ years on a straight$-$line basis $($no salvage value$).$ At the end of the fifth year, the $$750,000$ of working capital may be repatriated to the United States.

Locally assembled robots will be sold for the RMB equivalent of $$50$ each. Operating expenses per robot are as follows:

Materials purchased in China $($dollar equivalent of RMB cost$)$ $$15$

Components imported from U$.$S$.$ parent $$8$

Variable costs per unit $$23$

The $$8$ transfer price per unit for components sold by Noble to its Chinese subsidiary consists of $$4$ of direct costs incurred in the United States and $$4$ of pretax profit to Noble. There are no other operating costs in either China or the United States. The corporate income tax rates in China and the United States are $25\%$ and $21\%,$ respectively.

Noble uses a $15\%$ discount rate to evaluate all its investment projects. The present value factor for a single payment in five periods at $15\%$ is $0\mathrm{.}497.$ The present value factor for an annuity of payments for five periods at $15\%$ is $3\mathrm{.}352.$

Assume the investment is made at the end of $2020,$ and all operating cash flows occur at the end of $2021$ through $2025.$ The RMB$/$U$.$S$.$ dollar exchange rate is expected to remain constant over the $5-$year period.

a$.$ Assuming that Noble uses a parent company perspective in making foreign capital investment decisions, calculate NPV$.$ Based on your result, do you recommend that the company make the investment?

b$.$ Noble learns that if it decides not to invest in China, a German company will probably make an investment similar to that being considered by Noble. The German investment would be protected by the Chinese government against imports by other foreign robot manufacturers. How does this information affect your analysis and recommendation?