Today is 20^th April, 2020. You are a senior financial analyst with ADP in their capital budgeting division. ADP is considering expanding in Australia due to its positive business atmosphere and cultural similarities to the U.S.

The new facility would require a one-off initial investment in fixed assets of $1.5 billion in Australian and additional capital investment of 4% of revenue each year in year 1-4. All capital investments would be depreciated straight-line over five years following the investment. Assume that at the end of the project the sales price of equipment is AUD 100 million. Revenues from the facility are expected to be $2 billion AUD in year 1 and grow at 10% per year thereafter. The cost of goods sold (COGS) would be 30% of revenue; the other operating expenses (excluding the Depreciation and Amortisation expenses (D&A)) would amount to 11% of revenue. Net working capital requirements would be 10% of sales and would be required the year prior to the actual revenues. All net working capital would be recovered at the end of the fifth year. Assume that the tax rates are the same in the two countries, and that two markets are internationally integrated, and that the cash flow uncertainty of the project is un-correlated with changes in the exchange rate (hint: you can use the home currency approach to value the Australian business; the home currency is USD). You manager wants you to find the NPV of the project in U.S. dollars using a USD cost of capital of 8%.