This value is different both in amount and, in this instance, in sign, from value as
a project because different cash flows are being measured. The major differences are:
- Total cash flow versus dividends.From a project point of view, all cash gener-
ated contributes to value because it is available within Brazil. From a parent
point of view, cash in Brazil has no value until received by the U.S. parent in the
United States. That is, retained earnings and funds equal to depreciation charges
are valued at once in the host country, Brazil, but only when and if recovered (or
completely available to be recovered) in the parent country, the United States. - Free cash flow.Free cash flow (cash flow greater than needed for day-to-day
operations) is valued at the time received in the project approach, but only when
remitted to the parent company as a liquidating dividend from a parent point of
view. - Royalties.Royalties and similar charges paid by Cacau do Brasil to its U.S. par-
ent are not part of cash flow in the project valuation (in fact, they are an out-
flow), but are an important portion of the value to the U.S. parent. This suggests
that if the parent exports sufficient items of value to its foreign subsidiary, the
APPENDIX A 4 • 17CACAU DO BRASIL, S.A.
Project Net Present Value, All-Equity Basis
(In Thousands of Brazilian Reals)
Year Year Year Year Year Year
0 12345- Earnings before interest and
taxes Exhibit 4A.6, line 13) 10,550 12,076 13,610 15,375 17,122 - Less 40% income taxes^1 –4,220 –4,830 –5,444 –6,150 –6,849
—–—– —–—– —–—– ——— –––––– - All-equity net income 6,330 7,246 8,166 9,225 10,273
- Plus depreciation +7,500 +7,500 +7,500 +7,500 +7,500
- Less increase in receivable
balance Exhibit 4A.5,line 6) None –445 –477 –510 –547 - Less increase in inventory
balance(Exhibit 4A.5,line 9) –618 –669 –709 –772 –824 - Plus terminal value
(Exhibit 4A.5,line 6) 65,753
—–—– —–—– —–—– ——— –––––– - Net project cash flow 13,212 13,632 14,480 15,443 82,155
- 24% P.V. factor 0.8065 0.6504 0.5245 0.4230 0.3411
—–—– —–—– —–—– ——— –––––– - PV of annual inflows 10,655 8,866 7,595 6,532 28,023
- Sum of PV of inflows +61,671
- PV of subsidized loan
(Exhibit 4A.6,line 5) +4,970 - Original outflow –56,000
––––––– - Net present value +10,641
Note 1: Brazilian income taxes shown on line 2 are not actual taxes paid, but are rather the
taxes that would have been paid had Cacau do Brasil, S.A. been financed entirely with eq-
uity. However only actual taxes paid, rather than hypothetical taxes based on an all-equity
assumption, are allowable as a credit against U.S. taxes on dividends received.
Exhibit 4A.7. Project Net Present Value, All-Equity Basis.