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RAYMOND J.HARBERT COLLEGE OF BUSINESS DEPARTMENT OF FINANCE MULTINATIONAL FINANCIAL MANAGEMENT Spring 2024 Homework 11-Multinational Capital Budgeting Privately owned Superior Oil Machine Company is considering investing in Czech Republic to have a refinery source closer to its European customers.The following assumptions are being considered Assumptions Original Investment (korunas,K) Spot exchange rate (K/$) 0 2 3 30.00 27.50 25.00 700,000 900,000 1,000,000 10.00 10.30 10.60 1,000.000 1,030.000 1,060,000 500,000 500,000 500,000 25,000.000 32.50 Unit demand Sales price per unit (K) Cash operating expenses (K) Depreciation (K) Investment in working capital (K) 1 10,000,000 Other Assumptions: 1.After year 3,Superior Oil expects the refinery to grow by 10%per year in perpetuity. HINT:Compute the terminal value in year 3for both the project and Superior’s investment using the perpetual model.The models are provided in your Lecture slides. 2.Since Superior Oil expects the refinery to operate in perpetuity,there is no expectation to recover the investment in working capital. 3.Variable manufacturing costs are expected to be 50%of sales. 4.The Czech corporate income tax rate is 25%and the United States corporate income tax rate is 30% 5.The Czech refinery will pay dividends equal to 50%of net income to Superior Oil. Superior Oil will be required to pay taxes in the United States on any dividend income received. 6.Superior Oil uses a weighted average cost of capital of 16%for its subsidiary operations and 13%for its parent company operations. Required: A.Compute the Czech refinery’s NPV and IRR and determine whether it is an attractive investment using the worksheet provided.Clearly show all your workings.(10 points) B.Compute the NPV and IRR of Superior Oi’s investment and determine whether it is worthwhile using the worksheet provided.Clearly show all your workings.(10 points) A. Czech refinery’s NPV and IRR Year 0 Year 1 Year 2 Year 3 Sales Less Costs: Cash Operating Expenses Depreciation Variable Manufacturing Costs EBIT Less:Czech Taxes Net Income (NOPAT) Add:Depreciation OCF Terminal Value Original investment Investment in working capital Total Cash Flows Calculator inputs for NPV Calculator inputs for IRR CFO= CFO= C01= CO1= C02= C02= C03= I= C03= CPT NPV= CPT IRR= WORKINGS B. Superior Oil investment’s NPV and IRR Year 0 Year 1 Year 2 Year 3 Dividends (K) Exchange rate Dividend (US$) Less:US taxes Dividend,net of taxes (US$) Terminal Value (US$) Original investment (US$) Investment in working capital (US$) Total Cash Flows (US$) Calculator inputs for NPV Calculator inputs for IRR CFO= CFO= C01= C01= C02= C02= C03= C03= l= CPT IRR= CPT NPV= WORKINGS

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