Domestic versus MNC Valuation

Answer the following questions in a word document showing all the calculations and working. Domestic versus MNC Valuation Question #1 1.IBM wants to undertake a 5yrs project in the USA that has the projected free cash flow stream shown below. What is the net present value (NPV) of the project if the WACC is 10%? Assume the initial investment is $6500 Years : 2019 2020 2021 2022 2023 Free Cash Flows : $1000 $2000 $3000 $4000 $5000 Solve PV with Calculator: Solve PV with Formula: Find the NPV and IRR 2.Assume the project will be undertaken by IBM’s subsidiary in Canada with the same forecasted free cash flow stream. What is the NPV of the project given the projected exchange rates of C$/US$? Assume the initial investment is C$6500 and the existing exchange rate is $.5/C$ Years : 2019 2020 2021 2022 2023 Free Cash Flows : C$1000 C$2000 C$3000 C$4000 C$5000 Exchange rates : .50 .50 .50 .50 .50 4.What is the valuation formula of a domestic US firm? 5.What is the valuation formula for the MNC? 6.How are the formulas similar? How are they different? Question #2 Note: This problem was already assigned and done in class till the OCF. You are required to just create the Free Cash Flow Schedule below and calculate the NPV and IRR. IBM is considering a new expansion project and the finance staff has received information summarized below. The project require IBM to purchase $900000 of equipment in 2013 (t=0). Inventory will increase by $175000 and accounts payable will rise by $75000. The project will last for four years. The company forecasts that they will sell 2685000 units in 2014 2600000 units in 2015 2525000 units in 2016 and 2450000 units in 2017. Each unit will sell for $2. The fixed cost of producing the product is $2 million each year. The variable cost of producing each unit will rise from $1.018 1.078 1.046 and $1.221 from 2013 to 2017 respectively. The equipment will be depreciated under the MACRS system using the applicable rates of 33% 45% 15% and 7% respectively When the project is completed in 2017 (t=4) the company expects that it will be able to salvage the equipment for $100000 and it expects that it will fully recover the NWC. The estimated tax rate is 40%. Based on the perceived risk the project’s WACC is estimated to be 10%. Your main task is to and evaluate the cash flows analyze the results and present your recommendations. To help in the analysis answer all the following questions: ðInitial cost consists of: oTotal equipment cost oNet Working Capital (i.e. Current Assets – Current Liabilities) Requirements: answer in details | .doc file Find the NPV and IRR Calculate the initial cost of the investment in year 0 What is the depreciation amount for each year? Calculate the book value for each year Calculate the after – tax salvage value? Calculate the Net Income for each year Calculate the OCF for each year Calculate the Free Cash Flow (FCF) for each year using the table below Calculate the NPV Should the project be accepted or rejected? Explain Find the NPV and IRR Calculate the initial cost of the investment in year 0 What is the depreciation amount for each year?Calculate the book value for each yearCalculate the after – tax salvage value?Calculate the Net Income for each yearCalculate the OCF for each yearCalculate the Free Cash Flow (FCF) for each year using the table belowCalculate the NPVShould the project be accepted or rejected? Explain

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