Your Firm Is Based in Southern Ireland (And Thereby Operates

question 93

Essay

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.
Repeat the above project analysis assuming that the Irish firm could replicate the project in Ireland.(i.e.cash flow out the project in Ireland and find break-even price (in €),quantity,NPV,IRR (in euro not dollars).

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Definitions:

F Statistic

A ratio used in analysis of variance (ANOVA) tests to determine whether the group means are statistically different from each other.

Interaction

In statistics, the way in which two or more variables are related in a non-additive manner when affecting a response variable.

Tension Modulus

The ratio of tensile stress to tensile strain in a material, reflecting its stiffness or elasticity under tension.

Flake Size

The dimensions or measurements of individual flakes, often used in reference to materials that are processed or produced in small, thin pieces.