A.Mama Mia Group, an Italian shoes manufacturer is considering moving some of its operations. Since majority of the shoes are exported to Norway, the Italian company wants to open a manufacturing facility there with two-year project period with initial cost of EUR400,000. The operations in Norway would begin in Year 1 and have the following details.

(Note: NOK is a currency code for Norwegian Kroner)

Assumptions

Value

Sales, Year 1 (NOK)

7,000,000

Annual growth of sales

3.00%

Variable Cost, Year 1 (NOK)

300,000

Annual growth of variable cost

5.00%

Depreciation expenses per year (NOK)

150,000

Mama Mia's WACC

10.00%

Corporate Tax in Italy

20%

Corporate Tax in Norway

22%

Remittance Tax in Italy

2%

Remittance Tax in Norway

3%

Spot Rate, Year 0

NOK10/EUR

The operations in Norway will pay 70% of its accounting profit to Mama Mia Group as an annual cash dividend. %. Long-run inflation is forecasted to be 2% per annum in the Norway and 4% in Italy. Assume that the purchasing power parity hold, calculate the NPV in EUR of this project from the perspective of parent company.

Answer rating: 100% (QA)

To calculate the NPV of the project we need to determine the projects cash flows discount them using ... View the full answer