This report is based on chapter 14 Multinational Capital Budgeting, but I attached the all related files thought the semester so far, in case you want check them.
Agro-Tech Ltd. is an Israel-based company engaged in the manufacturing and sale of products related to agriculture, as well as consultancy. Agro-Tech’s product range includes a large variety of seeds, fertilisers, pesticides, irrigation systems and certain processes for obtaining high crop-yield.
Currently, Agro-Tech is considering expansion by setting a subsidiary in India. The idea is to provide consultancy and other inputs like seeds, fertilisers and so on to the local farmers. The crop-yield will be purchased by the company at a pre-determined rate. The company will export organic fruits and vegetables from India to Europe and the revenue will be earned in Indian currency (INR). Agro-Tech will remit all of its after-tax earnings to Israel. The current exchange rate is 1Shekel = INR 18.05. The corporate tax rate in India is 30 per cent. Withholding tax in India is 25 per cent. Expected rate of return from this project is 12% p. a. The life of the project is 5 years.
The projected cash flow details of the project are as follows:
Initial investment: INR 15 million
Revenue: INR 30 million in Year 1, revenue increases from previous year by 15% each in Year 2 and Year 3, and by 10% each in Year 4 and Year 5.
Variable costs: estimated to be 30% of the relevant year’s revenue.
Fixed costs: INR 1 million each in Years 1, 2, 3, 4 and 5.
Admin and other expenses: INR 1 million each in Years 1, 2, 3, 4 and 5.
Depreciation of plant equipment: INR 2 million each in Years 1, 2, 3, 4 and 5.
Salvage value at the end of Year 5: INR 10 million
Task
. Your advice will be based on capital budgeting analysis and the analysis of other relevant factors.
The first part of the Report will consist only of calculations of remittance to home country and NPV.
The second part of the Report will consider any other relevant factors (one such factor is, exchange rate, but you can find many more factors).
Based on your analysis, you will make your recommendation
