Your Firm Is Based in Southern Ireland (And Thereby Operates

question 78

Short Answer

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 percent in Ireland and 40 percent 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 percent.The U.S.risk-free rate is 3 percent; the Irish risk-free rate is 2 percent.
What is the dollar-denominated IRR?

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Definitions:

Chiral

Pertaining to a molecule that cannot be superimposed on its mirror image, often leading to optical activity.

Achiral

Describing a molecule that is superimposable on its mirror image, thus not exhibiting chirality.

Chiral

Describes a molecule that cannot be superimposed on its mirror image, often leading to different reactions and interactions depending on the spatial arrangement of its atoms.

Enantiomer

A molecule from a duo that resembles its counterpart as a mirror reflection but cannot be perfectly overlaid, similar to the relationship between the left and right hands.