Question 5: International energy drink giant Energica Turkey's regional sales manager Hakan Çokbilir investigate the plans for the Middle East and plans to launch in Azerbaijan in 2021. The market price of the Company's plant in Turkey is determined to be $ 5 million. It causes the company to need a capital of $ 20 million in 2021 to shift the investment to Azerbaijan and to establish a new bottling factory and distribution channel. While the fixed expenses required for production, distribution and marketing as of 2021 are $ 3 million per year, 50 million liters of energy drink will be produced in the country at the end of each year. Variable costs arising from production and distribution will be 12 Cent per liter. According to the policy pursued, the expected minimum return rate of the company is accepted as 6%. The income from sales is expected to be 35 cents per liter. Bottling factories are expected to serve almost forever, so all unit costs and sales revenues are expected to remain constant forever. The company will be subject to a 30% tax tranche in accordance with the Azerbaijan tax law and capital investments will be eliminated with equal shares within 5 years. Do you think the company should make this investment? Why?
Question 5: International energy drink giant Energica Turkey's regional sales manager Hakan Çokbilir investigate the plans for the Middle East and plans to launch in Azerbaijan in 2021. The market price of the Company's plant in Turkey is determined to be $ 5 million. It causes the company to need a capital of $ 20 million in 2021 to shift the investment to Azerbaijan and to establish a new bottling factory and distribution channel. While the fixed expenses required for production, distribution and marketing as of 2021 are $ 3 million per year, 50 million liters of energy drink will be produced in the country at the end of each year. Variable costs arising from production and distribution will be 12 Cent per liter. According to the policy pursued, the expected minimum return rate of the company is accepted as 6%. The income from sales is expected to be 35 cents per liter. Bottling factories are expected to serve almost forever, so all unit costs and sales revenues are expected to remain constant forever. The company will be subject to a 30% tax tranche in accordance with the Azerbaijan tax law and capital investments will be eliminated with equal shares within 5 years. Do you think the company should make this investment? Why?
Chapter14: Multinational Capital Budgeting
Section: Chapter Questions
Problem 34QA
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Question
Transcribed Image Text:Question 5: International energy drink giant Energica Turkey's regional sales manager
Hakan Çokbilir investigate the plans for the Middle East and plans to launch in
Azerbaijan in 2021. The market price of the Company's plant in Turkey is determined to
be $ 5 million. It causes the company to need a capital of $ 20 million in 2021 to shift the
investment to Azerbaijan and to establish a new bottling factory and distribution channel.
While the fixed expenses required for production, distribution and marketing as of 2021
are $ 3 million per year, 50 million liters of energy drink will be produced in the country
at the end of each year. Variable costs arising from production and distribution will be 12
Cent per liter. According to the policy pursued, the expected minimum return rate of the
company is accepted as 6%. The income from sales is expected to be 35 cents per liter.
Bottling factories are expected to serve almost forever, so all unit costs and sales
revenues are expected to remain constant forever. The company will be subject to a 30%
tax tranche in accordance with the Azerbaijan tax law and capital investments will be
eliminated with equal shares within 5 years. Do you think the company should make this
investment? Why?
Expert Solution
Step 1
Net Present Value-It refers to the difference between cash inflow and cash outflow at discounted value. With the help of this method, analysis is made whether financing should be made to that project or not.
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