A US Biotech firm plans to expand its operation in Singapore through the acquisition of a...

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A US Biotech firm plans to expand its operation in Singapore through the acquisition of a new laboratory machine which is expected to add value in the company in this COVID-19 era and beyond. This new machine costs 1.5 MILION SINS with an estimated economic life of 5 years which has an additional installation cost of SINS100,000. At the end of project life, this machine will have expected resale value of 400,000 Singapore dollar. The new machine will be depreciated on reducing-balance methods which has the following depreciation schedule. 2020 2021 2022 2023 2024 TI T2 13 T4 TS 2020 2021 2022 2023 2024 At the end of the life of the project, in 2024, all the net working capital on the books would be recoverable at cost fully. Given that the addition of new machine, the firm is expected to double its sales from previous year for first 2 years given that a great demand has been created due to COVID-19 and followed by 20% increase in sales for the remaining years. In 2019 the company in US recorded sales of $300,000 in US. While operating cost also is expected to increase from previous years due to hiring of new scientists. The operating cost is expected to be 50% total sales. Taxes would be paid at a 30% rate for disposable income and capital gain. The tax on remitted fund is assumed to be 10% 30% The following exchange rates estimated for the period 2020 through 2024 TI 12 20% 15% 10% 60USD/SINS 0.70USD SINS 0.72 USD/SINS | 50,71USD/SINS 0.65USD/SINS Based on independent valuation, it is expected that hurdle rate (cost of capital) for the project is to be estimated using CAPM model. It is suggested that the project has the estimated beta of 1.2. The risk free and average benchmark returns are expected to be respectively 3% and 6% The CAPM Approach - The Required Rate of Return kx-kay + (km-kar)bx Factors to consider in Multinational Capital Budgeting a. Prepare cash flow statements and compute the NPV and IRR of the proposed project. Comment on the feasibility of the project. c. Perform a sensitivity analysis on NPV of the project on the following scenarios: (i) Sales increases/decreases by 10% Comment on the feasibility of the project under each scenario. A US Biotech firm plans to expand its operation in Singapore through the acquisition of a new laboratory machine which is expected to add value in the company in this COVID-19 era and beyond. This new machine costs 1.5 MILION SINS with an estimated economic life of 5 years which has an additional installation cost of SINS100,000. At the end of project life, this machine will have expected resale value of 400,000 Singapore dollar. The new machine will be depreciated on reducing-balance methods which has the following depreciation schedule. 2020 2021 2022 2023 2024 TI T2 13 T4 TS 2020 2021 2022 2023 2024 At the end of the life of the project, in 2024, all the net working capital on the books would be recoverable at cost fully. Given that the addition of new machine, the firm is expected to double its sales from previous year for first 2 years given that a great demand has been created due to COVID-19 and followed by 20% increase in sales for the remaining years. In 2019 the company in US recorded sales of $300,000 in US. While operating cost also is expected to increase from previous years due to hiring of new scientists. The operating cost is expected to be 50% total sales. Taxes would be paid at a 30% rate for disposable income and capital gain. The tax on remitted fund is assumed to be 10% 30% The following exchange rates estimated for the period 2020 through 2024 TI 12 20% 15% 10% 60USD/SINS 0.70USD SINS 0.72 USD/SINS | 50,71USD/SINS 0.65USD/SINS Based on independent valuation, it is expected that hurdle rate (cost of capital) for the project is to be estimated using CAPM model. It is suggested that the project has the estimated beta of 1.2. The risk free and average benchmark returns are expected to be respectively 3% and 6% The CAPM Approach - The Required Rate of Return kx-kay + (km-kar)bx Factors to consider in Multinational Capital Budgeting a. Prepare cash flow statements and compute the NPV and IRR of the proposed project. Comment on the feasibility of the project. c. Perform a sensitivity analysis on NPV of the project on the following scenarios: (i) Sales increases/decreases by 10% Comment on the feasibility of the project under each scenario.