HomeWeb UK is a subsidiary of HomeWeb USA. The company manufactures home securit

Question

HomeWeb UK is a subsidiary of HomeWeb USA. The company manufactures home security system. HomeWeb UK has forecasted the sales and cost figures for the next three years. They are as follows:

Sales Volume = 100,000 units

Sales Price = £100 per unit

Cost = £60 per unit

UK Corporate tax rate = 25%

Spot Exchange rate = $1.50/£

Forward rate = $1.25

Operating Expenses = 15 percent of Sales Revenue

Depreciation = £500,000

Cost of Capital = 7 percent

Investing rate (UK) = 3 percent

Investing rate (US) = 2.5 percent

What is the present value of HomeWeb UK's cash flow in dollars?

Question 35 options:

($3,499,088.05)

($5,248,632)

$7,872,948.13

$5,248,632

($3,499,088.05)

($5,248,632)

$7,872,948.13

$5,248,632

Explanation / Answer

Ans-

£ Sales Volume 100000 unit Sales price 100 /unit Sales revenue 10000000 less-Cost 60/unit 6000000 (100000*60) Contribution 4000000 Less-Depreciation 500000 Less-Opreating exp. 1500000 (15% on sales revenue) EBT 2000000 Less-Tax @ 25% 500000 EAT 1500000 Add-Depreciation 500000 Net cash flow 2000000 PVIF @7% for 3 years 2.634 PV OF Cash Flow 5268000

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