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RoadsRus Contracting Corp. is considering a road-construction project in Nepal. The following data has been...

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Finance

RoadsRus Contracting Corp. is considering a road-construction project in Nepal. The following data has been collected by the corporation's project management team:

  1. Cost of project (1 time cost in April 2020): Rs 50,000.
  2. The project will be financed with Rs25,000 retained earnings, and Rs25,000 debt issued in the US. 6. Project's Cost of Equity 15%; Projects Cost of Debt 12%.
  3. Operating Cash flow (revenues minus operating costs) (upon completion in April 2021):Rs 80,000.
  4. Lost sales (export of Tar), resulting in a loss of operating cash flows: Rs 1,000.
  5. Concessionary Loan at 10% (typical lending rate 20%): Rs 10,000. Loan is to be repaid in April 2021.
  6. Tax rate Nepal: 45% Tax rate in the US: 21%.
  7. Reactivated funds Rs 10,000. Funds will be released only if RoadsRus accepts the project.
  8. Expected savings from transfer pricing: $0.
  9. Spot rate S($/Rs) April 2020: 0.02.
  10. 1 year LIBOR(US$)=5%, 1 Year LIBOR(NepalRupee)=14%.
  11. Depreciation allowance on the project: Rs 5,000.

Q. Employ the APV method to indicate whether the project management team should accept the project.

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