Synergy Incorporated, a US based Multinational Company (MNC) manufacturing electrical appliances. The company currently having problem of increasing in labor cost and therefore it affects the company's has profit. The company has decided to reduce the cost. The Board of Directors is considering building a plant in South East Asia, Singapore and Indonesia are countries under consideration. Below are the estimated cash flow and exchange rate for both countries. Singapore Indonesia Forecasted Cash Flow Forecasted Exchange Year Cash Flow (IND) Exchange (SGD) (USD/SGD) (USD/IDR) 2017 (300,000) SGD4.4852 (5,200,000) IDR49.582 2018 65,000 SGD4.0614 1,500,000 IDR49.9648 2019 52,000 SGD4.1323 1,600,000 IDR52.4211 2020 60,000 SGD4.0905 1,800,000 IDR50.6107 2021 75,000 SGD4.4028 2,500,000 IDR51.3034 Based on the information, compute the potential investment's net present value (NPV) for Singapore and Indonesia if the company has weighted cost of capital of 10 and 12 percent. Suggest which location should be choosing by Synergy Incorporated and justify.
Synergy Incorporated, a US based Multinational Company (MNC) manufacturing electrical appliances. The company currently having problem of increasing in labor cost and therefore it affects the company's has profit. The company has decided to reduce the cost. The Board of Directors is considering building a plant in South East Asia, Singapore and Indonesia are countries under consideration. Below are the estimated cash flow and exchange rate for both countries. Singapore Indonesia Forecasted Cash Flow Forecasted Exchange Year Cash Flow (IND) Exchange (SGD) (USD/SGD) (USD/IDR) 2017 (300,000) SGD4.4852 (5,200,000) IDR49.582 2018 65,000 SGD4.0614 1,500,000 IDR49.9648 2019 52,000 SGD4.1323 1,600,000 IDR52.4211 2020 60,000 SGD4.0905 1,800,000 IDR50.6107 2021 75,000 SGD4.4028 2,500,000 IDR51.3034 Based on the information, compute the potential investment's net present value (NPV) for Singapore and Indonesia if the company has weighted cost of capital of 10 and 12 percent. Suggest which location should be choosing by Synergy Incorporated and justify.
Chapter14: Multinational Capital Budgeting
Section: Chapter Questions
Problem 3ST
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Transcribed Image Text:Synergy Incorporated, a US based Multinational Company (MNC) manufacturing
electrical appliances. The company currently having problem of increasing in labor cost
and therefore it affects the company's has profit. The company has decided to
reduce the cost. The Board of Directors is considering building a plant in South East
Asia, Singapore and Indonesia are countries under consideration. Below are the
estimatedcash flow and exchange rate for both countries.
Singapore
Indonesia
Forecasted
Cash Flow
Forecasted
Exchange
Year
Cash Flow
(IND)
Exchange
(SGD)
(USD/SGD)
(USD/IDR)
2017
(300,000)
SGD4.4852 (5,200,000)
IDR49.582
2018
65,000
SGD4.0614 1,500,000 IDR49.9648
2019
52,000
SGD4.1323
1,600,000
IDR52.4211
2020
60,000
SGD4.0905
1,800,000
IDR50.6107
2021
75,000
SGD4.4028 2,500,000
IDR51.3034
Based on the information, compute the potential investment's net present value (NPV)
for Singapore and Indonesia if the company has weighted cost of capital of 10 and 12
percent. Suggest which location should be choosing by Synergy Incorporated and
justify.
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