Finisterra, S.A. Finisterra, S.A., located in the state of Baja California, Mexico, manufactures frozen Mexican food, which enjoys a large following in the U.S. states of California and Arizona to the north. In order to be closer to its U.S. market, Finisterra is considering moving some of its manufacturing operations to southern California. Operations in California would begin in year 1 and have the following assumptions: The operations in California will pay 75% of its accounting profit to Finisterra as an annual cash dividend. Mexican taxes are calculated on grossed up dividends from foreign countries, with a credit for host-country taxes already paid. What is the maximum U.S. dollar price Finisterra should offer in year 1 for the investment? Calculate the cash flow in year 1 below: (Round to the nearest whole number. The sales price and cost per unit must be rounded to the nearest cent.) Sales price per unit ($) Sales volume Revenue Costs per unit ($) Total costs Gross profit Year 1 5.00 1,400,000 (3.00) Year 2 Year 3 Less general and administrative expenses (100,000) (100,000) (100,000) Less depreciation expenses (84,000) (84,000) (84,000) Operating profit before taxes Less U.S. corporate income taxes (28%) Net income Dividends distributed ($) (75% of net income) Exchange rate (Ps/$) 8.00 9.00 10.00 Dividends remitted to parent (pesos) Ps Additional taxes due in Mexico 0 0 0 Dividends received, after-tax (pesos) Ps Terminal value ($) (discounted at 19.70%) (dividend in year 4 / 0.197) Terminal value (pesos) Total cash flow for discounting (pesos) Ps Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Assumptions Sales price per unit, year 1 (US$) Sales price increase, per year Initial sales volume, year 1, units Sales volume increase, per year Production costs per unit, year 1 Value $5.00 2.00% 1,400,000 1.00% $3.00 4.00% $100,000 $84,000 Production cost per unit increase, per year General and administrative expenses per year Depreciation expenses, per year Spot exchange rate (Peso = US$1.00) Year 0: 7.00 Year 1: 8.00 Year 2: 9.00 Year 3: 10.00 ample Finisterra's WACC (pesos) Terminal value discount rate 16.70% Clear all Check answe 19.70%

Finisterra, S.A. Finisterra, S.A., located in the state of Baja California, Mexico, manufactures frozen Mexican food, which enjoys a large following in the U.S. states of California and Arizona to the north. In order to be closer to its U.S. market, Finisterra is considering moving some of its manufacturing operations to southern California. Operations in California would begin in year 1 and have the following assumptions: The operations in California will pay 75% of its accounting profit to Finisterra as an annual cash dividend. Mexican taxes are calculated on grossed up dividends from foreign countries, with a credit for host-country taxes already paid. What is the maximum U.S. dollar price Finisterra should offer in year 1 for the investment? Calculate the cash flow in year 1 below: (Round to the nearest whole number. The sales price and cost per unit must be rounded to the nearest cent.) Sales price per unit ($) Sales volume Revenue Costs per unit ($) Total costs Gross profit Year 1 5.00 1,400,000 (3.00) Year 2 Year 3 Less general and administrative expenses (100,000) (100,000) (100,000) Less depreciation expenses (84,000) (84,000) (84,000) Operating profit before taxes Less U.S. corporate income taxes (28%) Net income Dividends distributed ($) (75% of net income) Exchange rate (Ps/$) 8.00 9.00 10.00 Dividends remitted to parent (pesos) Ps Additional taxes due in Mexico 0 0 0 Dividends received, after-tax (pesos) Ps Terminal value ($) (discounted at 19.70%) (dividend in year 4 / 0.197) Terminal value (pesos) Total cash flow for discounting (pesos) Ps Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Assumptions Sales price per unit, year 1 (US$) Sales price increase, per year Initial sales volume, year 1, units Sales volume increase, per year Production costs per unit, year 1 Value $5.00 2.00% 1,400,000 1.00% $3.00 4.00% $100,000 $84,000 Production cost per unit increase, per year General and administrative expenses per year Depreciation expenses, per year Spot exchange rate (Peso = US$1.00) Year 0: 7.00 Year 1: 8.00 Year 2: 9.00 Year 3: 10.00 ample Finisterra's WACC (pesos) Terminal value discount rate 16.70% Clear all Check answe 19.70%

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter17: Activity Resource Usage Model And Tactical Decision Making

Section: Chapter Questions

Problem 14E: Global Reach, Inc., is considering opening a new warehouse to serve the Southwest region. Darnell...

See similar textbooks