Magna Crater Enterprises (MCE) of the US exports 60,000 units of computer parts per year to Argentina. It sells them for the equivalent of $60 per unit. Total current cost is $48 per set. MCE is studying the possibility of establishing a subsidiary in Argentina to produce and sell the parts locally. Sales volume and price would not be affected.The cost of plant and equipment would be $2,000,000. Plant and equipment will be fully depreciated to book value of zero on a straight-line basis for two years. Their market salvage value is estimated at $600,000 at the end of year two. The upfront net working capital needs are $800,000. The level of NWC will not change in the interim period. The subsidiary would import all its raw materials from the parent at a cost of $16 per set. Additional local costs for the subsidiary are $4 per set. MCE's pre-tax profit margin on the $16 sale is $7. Tax rate in the US and Argentina is 40%.The WACC for MCE and its subsidiary is 15%.

1.How much is the total initial cash flow for this project?

a)$ 2,000,000

b)$ 2,800,000

c)$ 1,400,000

d)$ 1,200,000

2.How much are the cash flows that should be added at the end of year two to close operations. (In excess of the amount that's similar to year one net cash flows)?

a)$ 600,000

b)$ 1,400,000

c)$ 840,000

d)$ 1,160,000

3.How much are the effective cash flows to the parent at the end of year one if there are no restrictions on the repatriations of cash flows from the subsidiary?

a)$ 1,660,000

b)$ 432,000

c)$ 1,690,000

d)$ 1,264,000

e)$ 976,000