Your next option is building the plant in China. Assume all output from the facility will be sold into the domestic China market. Calculate the NPV of a DFI (show NPV in Chinese currency units, and converted to USD based on the currency exchange rate per the CIA web site link below).
CIA website: https://www.cia.gov/library/pu…
use the following assumptions:
1. The project life is ten years with no salvage value
2. Inflation is expected to be __% annually (research at CIA web site).
3. The plant construction cost incurred in Year 0 is $1,400,000 (convert into local currency at current exchange rate per CIA web site).
4. Estimated sales for sweaters from your plant in Year 1 are projected to be 100,000. Growth is estimated at 12% annually.
5. Sweaters will be priced at equivalent of 6 USD converted to local currency per exchange rate each in Year 1.
6. Wool costs 1.80 USD (convert)/pound in Year 1.
7. Each sweater requires 2 pounds of wool.
8. Labor cost is 0.80 USD (convert)/hr in Year 1.
9. Labor productivity is 2-sweaters/hr.
10. Assume a tax rate of 25%
11. Depreciation is on a straight line basis over 5 years with no salvage value
12. The risk free rate of return is 3%
13. The S&P 500 has been returning 12%
14. Your firm is typically returns about 70% more than the S&P500