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hi, a query in today”s paper that if the subsidy is given by home country not where u thinking to establish plant ,is that apv? and do we need to do net of tax in home country?
I have obviously not seen the exam, but from what you have written it would seem that the answer to both questions is ‘yes’ 🙂
Hi John,
The question was something like,
A US company need to set up a manufacturing base in a foreign country, which uses currency Dinar (For example)the international world bank promises a USD loan for all the capital expenditure and initial working capital requirements, at a 2 % rate (The company’s normal borrowing is at 5%)
The problem is : The project needs for example 1.2m Dinar for capex and 0.4m for working capital (random figures), but the capex only need immediate funding of for example 60% , balance 40% at beginning of year 2.
My question is:
1) Do my debt capacity = 1.6m Dinars from the start? I answer it based on actual funding taken, means my initial debt capacity is only the fund i need, then the debt capacity increases by the balance in year 2 onwards.
Any chance my assumption will be accepted? I start to think that i should have started with everything as my debt capacity T.T
2) Since the capex funds requirements is 60% immediately, balance 40% at beginning of y2, how does it looks like during our NPV computation?
I did 60% in Y0 and 40% in Y2, but i have been reading alot of comments on actually it refers to cash outflows in Y0 and Y1. If this part is wrong, means my capital allowances computations are also wrong, because my 40% additional capex is delayed by 1 year
T.T
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