To be submitted on 31.03.2018 Please come to class with a printed copy of the question paper. Premps plc manufactures Irish souvenirs. These souvenirs are exported in vast quantities to the US to the extent that Premps is considering setting up a manufacturing and commercial subsidiary there. After undertaking research, it has been found that it would cost $6m, comprising $5m in non-current assets and $1m in working capital. Annual sales of the souvenirs have been estimated as $4m and they would cost $2.5m per annum to produce. Other costs are likely to be $300,000 per annum. Tax are as follows. Ireland 23% US 25% Tax is payable in the year of occurrence in both countries. Assume there is no double tax relief. Capital allowances at a rate of 20% reducing balance are available. Balancing allowances or balancing charges should also be accounted for at the end of the project's life. The maximum possible funds will be remitted to the home country (Ireland) at the end of each year. The exchange rate is = $1. It is assumed that this rate will remain constant over the project's life. The €0.71 project is being appraised on a five-year time span. The non-current assets will be sold for an expected $2.5m at the end of the project's life. Premps uses a cost of capital of 12% on all capital investment projects. Required Calculate the NPV of the proposed project and recommend to the board of directors of Premps whether the US subsidiary should be set up. 3.4 TAXATION AND FISCAL POLICY
To be submitted on 31.03.2018 Please come to class with a printed copy of the question paper. Premps plc manufactures Irish souvenirs. These souvenirs are exported in vast quantities to the US to the extent that Premps is considering setting up a manufacturing and commercial subsidiary there. After undertaking research, it has been found that it would cost $6m, comprising $5m in non-current assets and $1m in working capital. Annual sales of the souvenirs have been estimated as $4m and they would cost $2.5m per annum to produce. Other costs are likely to be $300,000 per annum. Tax are as follows. Ireland 23% US 25% Tax is payable in the year of occurrence in both countries. Assume there is no double tax relief. Capital allowances at a rate of 20% reducing balance are available. Balancing allowances or balancing charges should also be accounted for at the end of the project's life. The maximum possible funds will be remitted to the home country (Ireland) at the end of each year. The exchange rate is €0.71 = $1. It is assumed that this rate will remain constant over the project's life. The project is being appraised on a five-year time span. The non-current assets will be sold for an expected $2.5m at the end of the project's life. Premps uses a cost of capital of 12% on all capital investment projects. Required Calculate the NPV of the proposed project and recommend to the board of directors of Premps whether the US subsidiary should be set up. 3.4 TAXATION AND FISCAL POLICY
Assignment-Set-9-May-2018.docx