The World Investment Report has put Ethiopia as one of the top performing African countries in Foreign Direct Investment flow, registering a 46% increase in 2016. In doing so, Ethiopia stood out to become one of the largest recipients of FDI in the continent posting strong and record growth (up 46 per cent to 3 billion USD) and became the second largest LDC host economy, up from the fifth position in 2015.
Philip Morris International (PMI)
The New York based Cigarette and Tobacco manufacturing company Philip Morris International (PMI) finds this an interesting report. As a part of business development team, you and your colleagues are responsible to evaluate a possible expansion into Ethiopia. You have identified a possible local tobacco manufacturer and negotiating a deal. The following information is available:
National Tobacco Enterprise (NTE)
NTE is a state owned tobacco manufacturing enterprise has a monopoly in the tobacco business. As a part of the privatization process, the Ethiopian Government is selling 40% stake in the company.
PMI will pay USD 500 million for 40% stake in the company. The current spot rate is 0.036 USD/ETB. Inflation is US is projected to be on an average about 2.36% and in Ethiopia it is projected to be 15.70% for next 5 years. All the projection is for five years.
The project will be finance with 50% equity investment by the parent company PMI USA and 50% debt. The USD debt is to be paid in 5 years with 5% interest. All the scheduled payments are priced at current spot rate. With the depreciation in ETB might raises FX gains and losses on the total loan payment.
Due to capital restrictions, Ethiopia is considered a segmented market. The risk free rate in U.S is 3%, the US equity risk premium is 4.5%, project’s beta is 1.2. Analysts also estimated the annualized standard deviation of stock return for US and Ethiopia are 12% and 36% respectively. About 100% of project’s overall revenue comes from domestic sources whereas the average Ethiopian firm’s domestic revenue ratio is about 95%.
For the parent company, the debt beta is 0.12, the equity beta is 0.77, the debt to asset is 25%. the US risk free rate is 3% and market risk premium is 4.5%. For PMI, the pre-tax cost of debt is 5%.
The current price of a packet of cigarette is ETB 68 and the price will increase according to Ethiopian inflation rate. It is also expected the project will run 40% capacity in year 1, 50% in year 2, 80% in year 3, and 100% for year 4 and 5. The maximum plant capacity is 75,000,000 packets per year.
The variable costs will increase by rate of inflation in Ethiopia, which is 15.70% every year. The variable costs for a packet of cigarette for the first year is ETB 20.
The sales and general expenses are expected to be 15% of the total sales. Additional expenses include licensing fee paid by the subsidiary to the parent company of 2.0% of sales and increasing 1% every year after 1st year.
The investment in Plant and equipment is ETB 400 million. It will be fully depreciate in 5 years.
The Ethiopian government will impose an income tax of 30% on income. In addition, Ethiopia also imposes 10% withholding tax on foreign dividend payment, 5% on interest payment, licensing fees, and terminal value of the project. The US corporate tax rate is 35%. The standard practice in case of loss is zero tax for the year and carry forward the loss for tax calculation in following years.
The NTE keeps 50% of net income and send remaining 50% to the parent company every year. The changes in NWC is 3% of sales revenue.
The project will be terminated in Year 5. The terminal value of the project is the present value of perpetual free cashflow in the 5th year. The growth rate in cash flow is assumed to be zero. The terminal value is subject to withholding tax.
Should PMI accept this project? If not explain what could the parent company do? Get Finance homework help today
Why Choose Us
At Myhomeworkwriters.com, we always aim at 100% customer satisfaction. As such, we never compromise o the quality of our homework services. Our homework helpers ensure that they craft each paper carefully to match the requirements of the instruction form.
Professional Academic Writers
With Myhomeworkwriters.com, every student is guaranteed high-quality, professionally written papers. We ensure that we hire individuals with high academic qualifications who can maintain our quality policy. These writers undergo further training to sharpen their writing skills, making them more competent in writing academic papers.
Our company maintains a fair pricing system for all academic writing services to ensure affordability. Our pricing system generates quotations based on the properties of individual papers.
My Homework Writers guarantees all students of swift delivery of papers. We understand that time is an essential factor in the academic world. Therefore, we ensure that we deliver the paper on or before the agreed date to give students ample time for reviewing.
Myhomeworkwriters.com maintains a zero-plagiarism policy in all papers. As such, My Homework Writers professional academic writers ensure that they use the students’ instructions to deliver plagiarism-free papers. We are very keen on avoiding any chance of similarities with previous papers.
Customer Support 24/7
Our customer support works around the clock to provide students with assistance or guidance at any time of the day. Students can always communicate with us through our live chat system or our email and receive instant responses. Feel free to contact us via the Chat window or support email: email@example.com.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Our writers complete papers strictly according to your instructions and needs, no matter what university, college, or high school you study in.
Our Homework Writing Services
My Homework Writers holds a reputation for being a platform that provides high-quality homework writing services. All you need to do is provide us with all the necessary requirements of the paper and wait for quality results.
At My Homework Writers, we have highly qualified academic gurus who will offer great assistance towards completing your essays. Our homework writing service providers are well-versed with all the aspects of developing high-quality and relevant essays.
Admission and Business Papers
With Myhomeworkwriters.com, we will help you secure a position at your desired institution. Our essay writing services include the crafting of admissions papers. We will still help you climb your career ladder by helping you write the official papers that will help you secure a job. We will guide you on how to write an outstanding portfolio or resume.
Editing and Proofreading
Myhomeworkwriters.com has a professional editorial team that will help you organize your paper, paraphrase it, and eliminate any possible mistakes. Also, we will help you check on plagiarism to ensure that your final paper posses quality and originality.
My Homework Writers harbors professional academic writers from diverse academic disciplines. As such, we can develop homework writing services in all academic areas. The simplicity or complexity of the paper does not affect the quality of homework writing services.