Alpha Inc. is contemplating oninvesting in a manufacturing facility in China. As a consultant,you are charged with doing the financial analysis for this project.You expect the cash flows (in Chinese RMB) for this project to lastindefinitely. You estimated the following cash flows for 2019-2024and that the cash flows will grow at a constant rate starting 2025.(12 points)Â Â
Year | FCF | Other Data |
2019 | -80,000,000 RMB | Growth rate of RMB FCF starting 2025 =3% |
2020 | 9,000,000 RMB | Cost of Capital for similar U.S.Projects (WACC) = 15% |
2021 | 10,000,000 RMB | Inflation in the U.S. = 2% |
2022 2023 2024 | 12,000,000 RMB 16,000,000 RMB 20,000,000 RMB | Inflation in China = 6% Spot rate = 6.5 RMB/USD |
- What is the appropriate discount rate you should use todiscount the RMB cash flows?
- What is the RMB NPV and IRR for this project? (If Excel isused, please cut and paste it here, showing all the cash flows andanswers to this question.)
- What is the USD NPV for this project? (Please show yourcalculation converting RMB NPV to USD NPV
- What are the i) RMB cost of capital and ii) RMB NPV ifinflation in China rises to 7% and the U.S. inflation drops to1%
Please attach your spreadsheet
