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- Download: https://solutionzip.com/downloads/china-plant/
- Your next option is building the plant in China. Assume all output from the facility will be sold into the domestic China market. Calculate the NPV of a DFI (show NPV in Chinese currency units, and converted to USD based on the currency exchange rate per the CIA web site link below).
- CIA website: https://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html#2076.
- Use the following assumptions:
- 1. The project life is ten years with no salvage value
- 2. Inflation is expected to be __% annually (research at CIA web site).
- 3. The plant construction cost incurred in Year 0 is $1,400,000 (convert into local currency at current exchange rate per CIA web site).
- 4. Estimated sales for sweaters from your plant in Year 1 are projected to be 100,000. Growth is estimated at 12% annually.
- 5. Sweaters will be priced at equivalent of 6 USD converted to local currency per exchange rate each in Year 1.
- 6. Wool costs 1.80 USD (convert)/pound in Year 1.
- 7. Each sweater requires 2 pounds of wool.
- 8. Labor cost is 0.80 USD (convert)/hr in Year 1.
- 9. Labor productivity is 2-sweaters/hr.
- 10. Assume a tax rate of 25%
- 11. Depreciation is on a straight line basis over 5 years with no salvage value
- 12. The risk free rate of return is 3%
- 13. The S&P 500 has been returning 12%
- 14. Your firm is typically returns about 70% more than the S&P500
- Download: https://solutionzip.com/downloads/china-plant/
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