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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Your firm is based in southern Ireland (and thereby operates in euro, not pounds) and is considering an investment in the United States. The project involves selling widgets: you project a sales volume of 50,000 widgets per year, sales price of $20 per widget with a contribution margin of $15 per widget. The project will last for 5 years, require an investment of $1,000,000 at time zero (which will be depreciated straight-line to $10,000 over the 5 years). Salvage value for the equipment is projected to be $10,000. The project will operate in rented quarters: $300,000 rent is due at the start of each year. The corporate tax rate is 12½% in Ireland and 40% in the U.S. For simplicity, assume that taxes are paid like sales taxes: immediately. The spot exchange rate is $1.50 = €1.00. The cost of capital to the Irish firm for a domestic project of this risk is 8%. The U.S. risk-free rate is 3%; the Irish risk-free rate is 2%.
What is the dollar-denominated IRR?
What is CF5 in dollars?
What is CF0 in dollars?
What is CF1 in dollars?
What is the NPV of the U.S.-based project to the Irish firm?
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