Kasih Kempas Berhad, is a cooking oil producer in Semenyih. The company is considering setting up...

Transcribed Image Text:

Kasih Kempas Berhad, is a cooking oil producer in Semenyih. The company is considering setting up a new refinery factory in Kalimantan, Indonesia. The original investment in Indonesian Rupiah would amount to IDR 27.5 billion or MYR 11 million at the current spot rate of IDR2,500/MYR, all in fixed asset, which will be depreciated over 10 years by the simplified straight line method. An additional IDR 10 billion will be needed for working capital. Variable manufacturing costs are expected to be 40% of sales. No additional fund need be invested during the period under consideration. The life span of the project is 4 years and the subsidiary is expected to be sold at the end of year 4 to an acquiring firm at a price of IDR 10 billion after considering the capital gains taxes. All free cash flow will be repatriated to Malaysia as soon as possible. In evaluating the project, the MYR forecasts are shown in the table below. Items/Year Initial Investment (IDR) Spot exchange rate (IDR/MYR) Unit Demand Unit Sales Price (MYR) Fixed Cash Operating Expenses (MYR) Depreciation (MYR) Investment in working capital 27.500,000,000 2500 10.000.000.000 2 2600 2650 2550 2700 1,150,000 900,000 1,000,000 1.100,000 14 15 17 18 1,100,000 1,200,000 1,250,000 1,300,000 1.100,000 1,100,000 1,100,000 1,100,000 4 The Indonesian government is charging a corporate tax of 35% and the Malaysian government's corporate tax is 25%. However, the Indonesian government will not impose any withholding tax on earning remitted by the subsidiary. The Malaysian government charges a 5% tax on the income remitted to the parent company in Malaysia. Assume that the required rate of return for Kasih Kempas is 18% on this project. A. From the project viewpoint, what is the net present value (NPV) in MYR? B. Calculate the NPV from the parent viewpoint in MYR. Kasih Kempas Berhad, is a cooking oil producer in Semenyih. The company is considering setting up a new refinery factory in Kalimantan, Indonesia. The original investment in Indonesian Rupiah would amount to IDR 27.5 billion or MYR 11 million at the current spot rate of IDR2,500/MYR, all in fixed asset, which will be depreciated over 10 years by the simplified straight line method. An additional IDR 10 billion will be needed for working capital. Variable manufacturing costs are expected to be 40% of sales. No additional fund need be invested during the period under consideration. The life span of the project is 4 years and the subsidiary is expected to be sold at the end of year 4 to an acquiring firm at a price of IDR 10 billion after considering the capital gains taxes. All free cash flow will be repatriated to Malaysia as soon as possible. In evaluating the project, the MYR forecasts are shown in the table below. Items/Year Initial Investment (IDR) Spot exchange rate (IDR/MYR) Unit Demand Unit Sales Price (MYR) Fixed Cash Operating Expenses (MYR) Depreciation (MYR) Investment in working capital 27.500,000,000 2500 10.000.000.000 2 2600 2650 2550 2700 1,150,000 900,000 1,000,000 1.100,000 14 15 17 18 1,100,000 1,200,000 1,250,000 1,300,000 1.100,000 1,100,000 1,100,000 1,100,000 4 The Indonesian government is charging a corporate tax of 35% and the Malaysian government's corporate tax is 25%. However, the Indonesian government will not impose any withholding tax on earning remitted by the subsidiary. The Malaysian government charges a 5% tax on the income remitted to the parent company in Malaysia. Assume that the required rate of return for Kasih Kempas is 18% on this project. A. From the project viewpoint, what is the net present value (NPV) in MYR? B. Calculate the NPV from the parent viewpoint in MYR. Kasih Kempas Berhad, is a cooking oil producer in Semenyih. The company is considering setting up a new refinery factory in Kalimantan, Indonesia. The original investment in Indonesian Rupiah would amount to IDR 27.5 billion or MYR 11 million at the current spot rate of IDR2,500/MYR, all in fixed asset, which will be depreciated over 10 years by the simplified straight line method. An additional IDR 10 billion will be needed for working capital. Variable manufacturing costs are expected to be 40% of sales. No additional fund need be invested during the period under consideration. The life span of the project is 4 years and the subsidiary is expected to be sold at the end of year 4 to an acquiring firm at a price of IDR 10 billion after considering the capital gains taxes. All free cash flow will be repatriated to Malaysia as soon as possible. In evaluating the project, the MYR forecasts are shown in the table below. Items/Year Initial Investment (IDR) Spot exchange rate (IDR/MYR) Unit Demand Unit Sales Price (MYR) Fixed Cash Operating Expenses (MYR) Depreciation (MYR) Investment in working capital 27.500,000,000 2500 10.000.000.000 2 2600 2650 2550 2700 1,150,000 900,000 1,000,000 1.100,000 14 15 17 18 1,100,000 1,200,000 1,250,000 1,300,000 1.100,000 1,100,000 1,100,000 1,100,000 4 The Indonesian government is charging a corporate tax of 35% and the Malaysian government's corporate tax is 25%. However, the Indonesian government will not impose any withholding tax on earning remitted by the subsidiary. The Malaysian government charges a 5% tax on the income remitted to the parent company in Malaysia. Assume that the required rate of return for Kasih Kempas is 18% on this project. A. From the project viewpoint, what is the net present value (NPV) in MYR? B. Calculate the NPV from the parent viewpoint in MYR.

Answer rating: 100% (QA)

A Project viewpoint NPV in MYR 1 Calculate annual aftertax cash flows in IDR Year 1 Sales revenue 10... View the full answer