The Wolverine Company consider setting up a branch in New Zealand.

Use the following information to evaluate the project:

- The initial investment capital for the plant, equipment and machinery is NZ$50 million,
- The current exchange rate of NZ$ is 0.5US$.
- In addition, the established branch will borrow NZ$50 million from New Zealand bank as
working capital. Interest rate 14%/year. The principal will be refunded after 3 years.
- Price, quantity demanded, and variable cost for each product and exchange rate are estimated as
follows
Chi phí biến đổi
Year Price Exchange rate NZ$ Lượng cầu (s phẩm)
(NZ$)
1 500 0,52 40.000 30
2 511 0,54 50.000 35
3 530 0,56 60.000 40
Fixed costs (eg office costs) are estimated at NZ$6 million/year

- The New Zealand government will apply a 30% corporate tax, a 10% witholding tax for remitted
refund.

- The US government will not impose any other taxes or fees.

- All funds collected by the branch can be transferred to the parent company at the end

Of t. The branch uses working capital to support business operations.

- Plant and equipment will be amortized over 5 years using the straight-line method.

- The project will end after 3 years. The company will then sell the branch at an estimated price of 52
million NZ$ (after tax). Assuming the New Zealand government won't charge a witholding tax for
this salvage value. The branch cannot recover working capital. Company

acquired branch will receive it.

- The required profit of the project is 20%/year

a. Caculate the NPV of this project. Should the company undertake the project?

b. Assume that Wolverine Company anticipates option 2: will invest $10 million as working capital so
the branch will not have to borrow from the bank anymore. If the company decides this way, the
salvage value will have an extra of NZ$18 million. Should the company implement this project?

c. Assume the company follows the first option, but is only allowed to transfer money back to the
country when after year 3. The capital that has not been repatriated will be invested with interest rate
of 6%/year (after income tax). Determine how NPV is affected?

d.Assume the company decides to implement the project according to the first investment option.
After one year done, another New Zealand company decide to acquire a branch for USD 27 million .
Should the company sell or continue to operate the branch?

e. Assume the company follows the first option, and the volatility of NZ$ is about 2%/year. How is
NPV in the worst case scenario, with confident level 99%? (Calculate NZ$ based on VAR formula)