Palo Alto Electronics (PAE) of the US exports 140,000 sets of routers per year to the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Palo Alto Electronics (PAE) of the US exports 140,000 sets of routers per year to the Philippines. It sells them for the equivalent of $112 per set. Current total costs are $88 per set and are expected to stay the same for the next ten years. PAE is studying an offer to start a subsidiary in the Philippines (to be named PAE Philippines) that would establish a project to produce and sell the routers locally. Initial investment would be $18,500,000 (including $100,000 in shipping and installation) in plant and equipment and $6,200,000 in net working capital. All initial NWC is expected to be recovered at the end of year ten. Plant and equipment will be depreciated to a book value of $3,500,000 on a straight-line basis for their ten-year project life, but will have $4,800,000 market salvage value. PAE Philippines would import all the parts it needs from the parent company at a cost of $24 per set. Additional local variable costs are $8 per set. Local fixed costs are $3,600,000. The parent's pre-tax profit margin on the $24 per unit sale to its subsidiary is $10. Tax rate in the US and the Philippines is 30%. Discount rate for Palo Alto is 12% and it applies to both the parent company and its prospective subsidiary. Assume there is no increase in the number of units sold over the ten year period. a. Use an income statement format and an excel spreadsheet to calculate all relevant cash flows from the subsidiary's perspective. b. Is the project profitable in its own right (i.e. from the subsidiary's perspective)? Show all calculations that enter into this decision masking process. c. Assuming no limits on repatriation, what are the effective annual cash flows to PAE (the parent company)? d. Should PAE build the plant in the Philippines instead of exporting? Show all calculations. Palo Alto Electronics (PAE) of the US exports 140,000 sets of routers per year to the Philippines. It sells them for the equivalent of $112 per set. Current total costs are $88 per set and are expected to stay the same for the next ten years. PAE is studying an offer to start a subsidiary in the Philippines (to be named PAE Philippines) that would establish a project to produce and sell the routers locally. Initial investment would be $18,500,000 (including $100,000 in shipping and installation) in plant and equipment and $6,200,000 in net working capital. All initial NWC is expected to be recovered at the end of year ten. Plant and equipment will be depreciated to a book value of $3,500,000 on a straight-line basis for their ten-year project life, but will have $4,800,000 market salvage value. PAE Philippines would import all the parts it needs from the parent company at a cost of $24 per set. Additional local variable costs are $8 per set. Local fixed costs are $3,600,000. The parent's pre-tax profit margin on the $24 per unit sale to its subsidiary is $10. Tax rate in the US and the Philippines is 30%. Discount rate for Palo Alto is 12% and it applies to both the parent company and its prospective subsidiary. Assume there is no increase in the number of units sold over the ten year period. a. Use an income statement format and an excel spreadsheet to calculate all relevant cash flows from the subsidiary's perspective. b. Is the project profitable in its own right (i.e. from the subsidiary's perspective)? Show all calculations that enter into this decision masking process. c. Assuming no limits on repatriation, what are the effective annual cash flows to PAE (the parent company)? d. Should PAE build the plant in the Philippines instead of exporting? Show all calculations.
Expert Answer:
Answer rating: 100% (QA)
Here are the calculations for this multiple part question a Income statement for PAE Philippines all ... View the full answer
Related Book For
Accounting for Decision Making and Control
ISBN: 978-1259564550
9th edition
Authors: Jerold Zimmerman
Posted Date:
Students also viewed these accounting questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Review the Financial Statements provided to each group on Blackboard (You may use laptops for this exercise). [ Focus on: a) Is the company Profitable b) Does the company have a lot of liabilities c)...
-
You have the following data on Joe's Corporation: EBIT:$1,000,000 Tax rate:40% Cost of equity:10% Joe's is a zero growth firm, and is currently financed entirely with equity (in other words, it...
-
Another way to evaluate a polynomial A(x) of degree-bound n at a given point x 0 is to divide A(x) by the polynomial (x x 0 ), obtaining a quotient polynomial q(x) of degree-bound n 1 and a...
-
Taylor has been engaged to audit the financial statements of University Books, Inc., a full-service college bookstore serving the university community and the general public. University Books...
-
The projections of direct materials purchases that follow are for Creek Corporation. The company pays for 60 percent of purchases on account in the month of purchase and 40 percent in the month...
-
What are the primary determinants of job satisfaction and how do they intersect with broader organizational dynamics ?
-
Using data from NHANES, we looked at the pulse rate for nearly 800 people to see whether it is plausible that men and women have the same population mean. NHANES data are random and independent....
-
Help with Question 21. Jeff's House, Main St. 110 yd Oak St. Field 62 yd Tom's House 20.) How much farther, to the nearest yard, is it for Tom to walk down Main Street and turn on Oak Street to get...
-
Why is cost accumulation easier with a process costing system compared with a job costing system?
-
Profile the economy of Belgium: What is its GDP? What is its per capita income? How fast is its economy growing? What are its major exports and imports? Who are its major trading partners? Success in...
-
Euclid (300 B.C.) a. published a book on the theory of sound b. first person to investigate musical sounds on a scientific basis c. wrote a treatise called Introduction to Harmonics d. founder of...
-
Wind-induced vibration a. can cause failure of turbines and aircraft engines b. cause discomfort in human activity during metal cutting c. can cause wheels of locomotives to rise off the track d. can...
-
Provide examples of industries that use process costing.
-
High school athletics are feeling the budget crunch of our times, so high schools are beginning to turn to corporate sponsors for additional revenues. Your task is to hypothesize: If you were a local...
-
Write an essay describing the differing approaches of nursing leaders and managers to issues in practice. To complete this assignment, do the following: 1. Select an issue from the following list:...
-
Gemini Logistics (GL) offers packaging and shipping solutions to small and medium-sized companies in the greater metropolitan New York City region that do not have scale economies to do in-house...
-
Swedish Hospital uses a step-down method to allocate 25 indirect service department costs (information technology, laundry, security, records, food service, etc.) to the six direct patient care units...
-
Promotional Products (PP) manufactures and sells electronic accessories such as smart-phone cases, flash drives, etc. PP uses a traditional full absorption costing system for financial reporting and...
-
As the marketing manager for Independent Packaging Pty Ltd, you have asked the accountant what it costs to make the Container2000 model because you want to set a price for the container. A similar...
-
Incomplete information concerning the financial performance of two manufacturing companies is presented below. Required Determine the answers to (a) to(f) for the two companies. Work in process,...
-
Smart Manufacturing Systems Pty Ltd uses a periodic inventory system and closes its accounts on 30 June each year. The companys closing entries made on 30 June 2025 were as shown below. Required (a)...
Study smarter with the SolutionInn App