Solution should be presented in an Excel file. Please

Santa Cruz Electronics (SCE) of the US exports 200,000 sets of routers per year to the Philippines. It sells them for the equivalent of $85 per set. Current total costs are $70 per set and are expected to stay the same for the next ten years. SCE is studying an offer to start a subsidiary in the Philippines (to be named SCE Philippines) that would establish a project to produce and sell the routers locally. Initial investment would be $22,000,000 (including $250,000 in shipping and installation) in plant and equipment and $9,600,000 in net working capital. Plant and equipment will be depreciated to a book value of $3,000,000 on a straight-line basis over the ten-year project life, but will have $5,600,000 market salvage value. SCE Philippines would import all the parts it needs from the parent company at a cost of $22 per set. Local fixed costs are $1,600,000. Additional local variable costs are $12 per set. The parents pre-tax profit margin on the $22 per unit sale to its subsidiary is $8/unit. Tax rate in the US and the Philippines is 25%. Discount rate for Santa Cruz is 16% 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.

Use an income statement format and an excel spreadsheet to calculate all relevant cash flows from the subsidiarys perspective.

Is the project profitable in its own right (i.e. from the subsidiarys perspective)? Show all calculations that enter into this decision masking process.

Assuming no limits on repatriation, what are the effective annual cash flows to SCE (the parent company)?

Should SCE build the plant in the Philippines instead of exporting? Show all calculations.