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Business, 11.05.2021 02:50 michaela134

Pepsi-Cola is planning on opening a subsidiary in India. The subsidiary will cost Rupees 1 billion; working capital needs of the subsidiary include an increase in inventories of Rupees 200 million, and increase in accounts payables to the tune of Rs. 300 million. The revenues from the subsidiary are estimated to be Rupees 800 million per year over a 5-year economic life. Depreciation expense after accounting for the savage value of Rs. 200 million will be Rupees 160 million/year. Total costs (fixed and variable costs together) will be Rupees 250 million/year. The plant will have a salvage value of Rupees 200 million (net of taxes) in the final year. Indian government imposes a 30% tax on earnings. 100% of the cash flows will be remitted to the parent. However, there will be a 10% withholding tax by the Indian Govt. Pepsi-Cola requires 14% return on new investments of this kind in developing countries. Exchange rate is expected to remain stable at Rs. 65/$26. The net investment cost ($) of this subsidiary is:

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Pepsi-Cola is planning on opening a subsidiary in India. The subsidiary will cost Rupees 1 billion;...
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