International Finance and Accounting Handbook

project may be worthwhile to the parent even if it should fail to pass the project

net present value criteria.

• Subsidized loan.The present value of the subsidized loan does not show as a
  cash flow to the parent because the loan is reflected in increased cash retention
  by the subsidiary over the five years. The parent benefits only from the higher
  terminal value and free cash recovered.

4 • 18 FOREIGN INVESTMENT ANALYSIS

CACAU DO BRASIL, S.A.

Net Present Value—Parent Perspective

(In Thousands of Brazilian Reals or U.S. Dollars)

Year Year Year Year Year Year

0 123 4 5

In Brazilian Reals

1. Brazilian royalties
   (Exhibit 4A.2, line 10) 6,250 6,695 7,172 7,682 8,229


2. U.S. tax @ 34% —–—––2,125 –2,276—–—– –2,438—–—– –2,612——— –––––––2,798


3. Net royalty 4,125 4,419 4,734 5,070 5,431


4. Brazilian dividend
   (Exhibit 4A.2, line 18) 4,207 4,992 5,785 6,687 7,587


5. Terminal value
   Exhibit 4A.5,line 6) —–—– —–—– —–—– ——— 65,753––––––


6. Total cash flow to parent 8,332 9,411 10,519 11,757 78,771


7. Forecast exchange rate 2.8549—–—– 2.9109—–—– 2.9680—–—– 3.0262——— ––––––3.0855

In U.S. Dollars

9. 
   

   Cash flow from Brazil 2,918 3,233 3,544 3,885 25,529

   
   


10. 
    

    Export contribution^1 —–—– (^594) —–—– (^624) —–—– (^657) ——— (^688) –––––– 724

    
    


11. 
    

    Total dollar inflow. 3,512 3,857 4,201 4,573 26,253

    
    


12. 
    

    24% PV factor 0.8065 0.6504 0.5245 0.4230 0.3411
    —–—– —–—– —–—– ——— ––––––

    
    


13. 
    

    Present value of inflows 2,832 2,509 2,203 1,934 8,955

    
    


14. 
    

    Sum of present value
    of inflows +18,433

    
    


15. 
    

    Less original outflow –20,000—–—––

    
    


16. 
    

    Net present value –1,567

    
    

Note 1:U.S. parent’s dollar profit on exports to Brazil:

Year Year Year Year Year

123 4 5

Unit sales price
in dollars(g = 2%) $ 360 $ 367 $ 375 $ 382 $ 390
Unit volume 25,000 25,750 26,522 27,318 28,138
—–—– —–—– —–—– ——— ––––––
Dollar revenue $ 9,000 $ 9,450 $ 9,946 $10,435 $10,974
Contribution to pretax
profit (10%) 900 945 995 1,043 1,097
Less U.S. 34% tax —–—––306 —–—––321 —–—––338 ———–355 –––––––373
Net cash contribution
to parent $ 594 $ 624 $ 657 $ 688 $ 724

Exhibit 4A.8. Net Present Value: Parent Perspective.