Homework: Lab 11 Question 5, Problem 18-8 (algorithmic) Part 1 of 17 HW Score: 0%, 0 of 5 points O Points: 0 of 1 Save Hermosa Components: Revenue Growth Scenario. Hermosa Beach Components, Inc., of California exports 25,000 sets of low-density light bulbs per year to Argentina under an import license that expires in five years. In Argentina, the bulbs are sold for the Argentine peso equivalent of 560.00 per set. Direct manufacturing costs in the United States and shipping together amount to $40 per set. The market for this type of bulb in Argentina has been stable, neither growing nor shrinking, and Hermosa holds the major portion of the market. The Argentine government has invited Hemosa to open a manufacturing plant so imported bulbs can be replaced by local production. If Hermosa makes the investment, it will operate the plant for five years and then sell the building and equipment to Argentine investors at net book value at the time of sale plus the value of any net working capital. (Net working capital is the amount of current assets less any portion financed by local debt.) Hermosa will be allowed to repatriate all net income and depreciation funds to the United States each year. Hermosa traditionally evaluates all foreign investments in U.S. dollar terms. Investment. Hermosa's anticipated cash outlay in U.S. dollars in 2012 would be as follows: All investment outlays will be made in 2012, and a operating cash flows will occur at the end of years 2013 through 2017. Depreciation and Investment Recovery. Building and equipment will be depreciated over five years on a straight-line basis. At the end of the fifth year, the $1,400,000 of net working capital may also be repatriated to the United States, as may the remaining net book value of the plant. Sales Price of Bulbs. Locally manufactured bulbs will be sold for the Argentine peso equivalent of $60.00 per set Operating Expenses per Set of Bulbs. Material purchases are as follows: Transfer Prices. The $10 transfer price per set for raw material sold by the parent consists of $5 of direct and indirect costs incurred in the United States on their manufacture, creatina S5 of pre-tax profit to Hermosa Beach. COD Calculate the free cash flows in years 2012 through 2014 from the project's viewpoint below: (Round to the nearest dollar.) 2012 2013 2014 25,000 60.00 S Project Cash Flows in Argentina: Project Viewpoint Annual units sold (sets) Sales price in Argentina per set Sales revenue Less direct manufacturing and shipping costs Less cost of U.S. components at $10/set Gross profit Less depreciation Pre-tax profit Less 40% Argentina taxes Calculate the free cash flows in years 2012 through 2014 from the project's viewpoint below: (Round to the nearest dollar.) 2012 2013 2014 Project Cash Flows in Argentina: Project Viewpoint Annual units sold (sets) Sales price in Argentina per set 25,000 60.00 Sales revenue Less direct manufacturing and shipping costs Less cost of U.S. components at $10/set Gross profit Less depreciation Pre-tax profit Less 40% Argentina taxes Net income Add back depreciation Annual project cash flow Return of net working capital $ (2,500,000) Initial investment Free cash flow for discounting $ Data table Building and equipment Net working capital Total investment $1,100,000 1,400,000 $2,500,000 Print Done Data table Materials purchased in Argentina (U.S. dollar equivalent) Materials imported from Hermosa Beach-USA Total variable costs $20 per set a 10 per set $30 per set Print Done