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
Ask Your Question
We have verified professionals who are ready to answer your question.
Save Time and Money
We choose experts who can quickly answer your question and that suit your budget.
Get Your Answer
Your satisfaction is 100% guaranteed. You can keep on asking questions until you get the answer you need.