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Teacherbot 12 Jan, 12:04:46

To determine the NPV using local cash flows and foreign cash flows, we need to calculate the net cash flows for each year and then discount them using the appropriate discount rate.

  1. Calculate the net cash flows for each year: Year 1: 300,000,000 - (300,000,000 * 0.3) = 210,000,000 Year 2: 320,000,000 - (320,000,000 * 0.3) = 224,000,000 Year 3: 350,000,000 - (350,000,000 * 0.3) = 245,000,000 Year 4: 340,000,000 - (340,000,000 * 0.3) = 238,000,000 Year 5: 330,000,000 - (330,000,000 * 0.3) = 231,000,000

  2. Calculate the NPV using local cash flows: NPV_local = (210,000,000 / (1 + 0.12)^1) + (224,000,000 / (1 + 0.12)^2) + (245,000,000 / (1 + 0.12)^3) + (238,000,000 / (1 + 0.12)^4) + (231,000,000 / (1 + 0.12)^5) - 800,000,000 NPV_local = 210,000,000 / 1.12 + 224,000,000 / 1.2544 + 245,000,000 / 1.4049 + 238,000,000 / 1.5744 + 231,000,000 / 1.7599 - 800,000,000 NPV_local = 187,500,000 + 178,571,429 + 174,603,175 + 151,515,152 + 131,481,481 - 800,000,000 NPV_local = -876,818,763

  3. Calculate the NPV using foreign cash flows: NPV_foreign = (300,000,000 / (1 + 0.12)^1) + (320,000,000 / (1 + 0.12)^2) + (350,000,000 / (1 + 0.12)^3) + (340,000,000 / (1 + 0.12)^4) + (330,000,000 / (1 + 0.12)^5) - (800,000,000 / 57.50) NPV_foreign = 300,000,000 / 1.12 + 320,000,000 / 1.2544 + 350,000,000 / 1.4049 + 340,000,000 / 1.5744 + 330,000,000 / 1.7599 - 13,913,043 NPV_foreign = 267,857,143 + 254,237,288 + 249,206,349 + 217,391,304 + 187,500,000 - 13,913,043 NPV_foreign = 1,162,179,041

Therefore, the NPV using local cash flows is -876,818,763 and the NPV using foreign cash flows is 1,162,179,041.

You 12 Jan, 12:09:08

Now I want to create 3 different versions of this. One version that is simpler, one version that is the same, and one version that is more complex. Format the output in 3 nice sections.

Teacherbot 12 Jan, 12:09:08

Simpler Version:

NPV using local cash flows: -876,818,763 NPV using foreign cash flows: 1,162,179,041

Same Version:

Year 1: 210,000,000 Year 2: 224,000,000 Year 3: 245,000,000 Year 4: 238,000,000 Year 5: 231,000,000

NPV using local cash flows: -876,818,763 NPV using foreign cash flows: 1,162,179,041

More Complex Version:

Year Year 1 Year 2 Year 3 Year 4 Year 5 Before Tax Earnings from the project 300,000,000 320,00,000 350,000,000 340,000,000 330,000,000

Additional information (i).Corporate Tax rate in Ethiopia is 30% (ii).Investment Cost is br.800, 000,000 millions (iii).Local discount rate is 12% (iv. Spot rate is br.57.50/$1 (v). Remittance by a subsidiary is 100% of net cash flows (vi).Withholding tax on Remitted fund is 10%.

Net Cash Flows: Year 1: 210,000,000 Year 2: 224,000,000 Year 3: 245,000,000 Year 4: 238,000,000 Year 5: 231,000,000

NPV using local cash flows: -876,818,763 NPV using foreign cash flows: 1,162,179,041

In all three versions, the NPV using local cash flows is -876,818,763 and the NPV using foreign cash flows is 1,162,179,041. The net cash flows for each year are as follows: Year 1: 210,000,000, Year 2: 224,000,000, Year 3: 245,000,000, Year 4: 238,000,000, Year 5: 231,000,000.

You 12 Jan, 12:09:57

Make this more complex

Teacherbot 12 Jan, 12:09:57

To make the analysis more complex, let’s consider additional factors such as inflation, exchange rate fluctuations, and changes in tax rates over the years.

  1. Incorporate inflation: Assume an average annual inflation rate of 5% in Ethiopia. Adjust the net cash flows for inflation before discounting them.

Year 1: 210,000,000 / (1 + 0.05)^1 = 200,000,000 Year 2: 224,000,000 / (1 + 0.05)^2 = 206,349,206 Year 3: 245,000,000 / (1 + 0.05)^3 = 214,876,033 Year 4: 238,000,000 / (1 + 0.05)^4 = 202,020,202 Year 5: 231,000,000 / (1 + 0.05)^5 = 190,476,190

  1. Incorporate exchange rate fluctuations: Assume the exchange rate fluctuates over the years. Adjust the net cash flows using the spot rate for each year.

Year 1: 200,000,000 / 57.50 = $3,478,261 Year 2: 206,349,206 / 57.50 = $3,586,207 Year 3: 214,876,033 / 57.50 = $3,737,931 Year 4: 202,020,202 / 57.50 = $3,511,111 Year 5: 190,476,190 / 57.50 = $3,310,345

  1. Incorporate changes in tax rates: Assume the corporate tax rate in Ethiopia increases to 35% starting from Year 3. Adjust the net cash flows accordingly.

Year 1: $3,478,261 - ($3,478,261 * 0.3) = $2,434,783 Year 2: $3,586,207 - ($3,586,207 * 0.3) = $2,510,345 Year 3: $3,737,931 - ($3,737,931 * 0.35) = $2,429,310 Year 4: $3,511,111 - ($3,511,111 * 0.35) = $2,281,481 Year 5: $3,310,345 - ($3,310,345 * 0.35) = $2,151,724

  1. Calculate the NPV using local cash flows: NPV_local = ($2,434,783 / (1 + 0.12)^1) + ($2,510,345 / (1 + 0.12)^2) + ($2,429,310 / (1 + 0.12)^3) + ($2,281,481 / (1 + 0.12)^4) + ($2,151,724 / (1 + 0.12)^5) - 800,000,000 NPV_local = $2,434,783 / 1.12 + $2,510,345 / 1.2544 + $2,429,310 / 1.4049 + $2,281,481 / 1.5744 + $2,151,724 / 1.7599 - 800,000,000 NPV_local = $2,176,336 + $1,999,999 + $1,730,769 + $1,452,381 + $1,222,222 - 800,000,000 NPV_local = -$791,267

  2. Calculate the NPV using foreign cash flows: NPV_foreign = ($3,478,261 / (1 + 0.12)^1) + ($3,586,207 / (1 + 0.12)^2) + ($3,737,931 / (1 + 0.12)^3) + ($3,511,111 / (1 + 0.12)^4) + ($3,310,345 / (1 + 0.12)^5) - ($800,000,000 / 57.50) NPV_foreign = $3,478,261 / 1.12 + $3,586,207 / 1.2544 + $3,737,931 / 1.4049 + $3,511,111 / 1.5744 + $3,310,345 / 1.7599 - $13,913,043 NPV_foreign = $3,107,143 + $2,860,215 + $2,663,043 + $2,230,769 + $1,881,720 - $13,913,043 NPV_foreign = $-1,070,153

Therefore, the NPV using local cash flows is -$791,267 and the NPV using foreign cash flows is -$1,070,153.