Klimewsky, Inc., a US-based multinational, has investigated several targets.Based on economic and political considerations, only one eligible

Fantastic news! We've Found the answer you've been seeking!

Question:

Klimewsky, Inc., a US-based multinational, has investigated several targets. Based on economic and political considerations, only one eligible target remains in Malaysia. Klimewsky wants you to appreciate this objective and has provided you with the following information:

• Klimewsky expects to maintain the target for three years, at which time he plans to sell the firm for 500 million Malaysian ringgit (MYR) after deducting the amount of taxes paid.

• Klimewsky expects a strong Malaysian economy. Consequently, the revenue estimates for the coming year are MYR300 million. Revenue is expected to increase 9% over the next two years.

• Cost of goods sold is expected to be 60% of revenue.

• Selling and administrative expenses are expected to reach MYR 40 million in each of the next three years.

• Malaysia's tax rate on target profits is expected to be 30%.

• Depreciation expense is expected to be MYR15 million per year for each of the next three years.

• The target will need MYR9 million in cash each year to support existing operations. (This reduces the cash remitted to Klimewsky)

• No additional taxes are payable in Malaysia.

• All remaining after-tax cash flows are remitted by the target to Klimewsky, Inc. Klimewsky uses the current exchange rate of the Malaysian ringgit as the expected exchange rate for the next three years. This exchange rate is currently $.23. No US taxes are due.

• Klimewsky's required rate of return on similar projects is 13%.

Question - List the risks you should consider when considering this proposal.