1. Tax effects on NPV. When considering the implementation of a project in one of various possible countries, what types of tax characteristics should be assessed among the countries?
2. Capital budgeting analysis. A project in South Korea requires an initial investment of 2 billion South Korean won. The project is expected to generate net cash flows to the subsidiary of 3 billion and 4 billion won in the two years of operation, respectively. The project has no salvage value. The current value of the won is 1800 won per pound, and the value of the won is expected to remain constant over the next two years.
a. What is the NPV of this project if the required rate of return is 13%?
b. Repeat the question, except assume that the value of the won is expected to be 2000 won per pound after two years. Further assume that the funds are blocked and that the parent company will only be able to remit them back to the United Kingdom in two years. How does this affect the NPV of the project?