Kalvin Corporation a U.S. based MNC h3s 3 subsidiary in Korea that manages hotel is.
The subsidiary believes it could also enter income adventure travel business. The following data has been com oiled for the ana lysis (in WONS Korea's currency):
Initial investment KOW 4000 million
Expected life of the project is 3 years.
Gross Profit per year is KOW 3000 miner.
Depreciation s 15% or initial investment.
Interest Expenses are 400 million each year.
Salvage Value is KOW 1000 million.
Initial Exchange rate is 1500 KOW/USD.
Forecasted exchange rate for year 1 is 1400 KOV/VUSD, year 2 is 1200 KOW/USO and year 3 1000 KOW/USD.
The Korean Govt imposes a 30% tax on profit
The subsidiary remit all its net income to parent company.
The Korean Govt also imposes 10% withholding tax on any funds remitted to the U.S. parent company including salvage value.
The required rate of rectum is 1315%.
1. What 5 the evaluation of the project for Kalvin's subsidiary?
2. What 5 the evaluation of the project for Kalvin?
3. What is your recommendation for Kalvin?