Those are definitely not the jobs that Arabians want. We'll train some for the from office and sales, but I doubt they will make up more then 10 percent of the labor force.
STRAUSS On the other hand, the value of our plant would drop. If it were worth 3.4 million before and the pound drops by 20 percent, then the value of our investment drops 20 percent, too.
ALTMAN The plant is going to be more profitable than ever after devaluation since labor costs may drop slightly , and so other costs like taxes may decrease in dollar terms, too. So it seems to me that the plant must be more valuable ,not less.
STRAUSS How much would it sell for ?
ALTMAN I don't know. I'll have to look into that.
PHILLIPS Let's talk a little more about the rate of return. Your NPV estimate assumes a raquired return of 15 percent, which is the hurdle rate for our U.S. projects. Shouldn't we use a higher rate for a foreign investment ?
ALTMAN As a general rule, I agree. All of the other foreign projects I've presented to the board have had rates of return in excess of 20 percent. But this project is much safer than the typical foreign investment. The infrastructure is built and in excellent condition,taxes are no problem, shipping costs to our markets are modest, the government is stable, and the life of the project is only seven years- we get out money out pretty quickly.
PHLLIPS True, but this project not make it if the tax law changes. We' don't usually approve projects that are so close to the hurdle rate that a tax advantage would make a difference.
STRAUSS In this case,though, there is a time limit on using on using the losses. If we don't use them up soon, they'll pass the time limit and we can't use them at all
PHILLPS Why can't we build the same plant in Europe? Then the transportation costs would be even lower, and we could avoid some tariffs.
STRAUSS True, but then we wouldn't be able to use the tax credits.
STRAMAN The costs of building and operating a plant in Europe are higher, too.
PHlLLIPS Why don’t you look at some of the issues we’ve discussed and we’ll meet again Monday morning.
Those are definitely not the jobs that Arabians want. We'll train some for the from office and sales, but I doubt they will make up more then 10 percent of the labor force.
STRAUSS On the other hand, the value of our plant would drop. If it were worth 3.4 million before and the pound drops by 20 percent, then the value of our investment drops 20 percent, too.
ALTMAN The plant is going to be more profitable than ever after devaluation since labor costs may drop slightly , and so other costs like taxes may decrease in dollar terms, too. So it seems to me that the plant must be more valuable ,not less.
STRAUSS How much would it sell for ?
ALTMAN I don't know. I'll have to look into that.
PHILLIPS Let's talk a little more about the rate of return. Your NPV estimate assumes a raquired return of 15 percent, which is the hurdle rate for our U.S. projects. Shouldn't we use a higher rate for a foreign investment ?
ALTMAN As a general rule, I agree. All of the other foreign projects I've presented to the board have had rates of return in excess of 20 percent. But this project is much safer than the typical foreign investment. The infrastructure is built and in excellent condition,taxes are no problem, shipping costs to our markets are modest, the government is stable, and the life of the project is only seven years- we get out money out pretty quickly.
PHLLIPS True, but this project not make it if the tax law changes. We' don't usually approve projects that are so close to the hurdle rate that a tax advantage would make a difference.
STRAUSS In this case,though, there is a time limit on using on using the losses. If we don't use them up soon, they'll pass the time limit and we can't use them at all
PHILLPS Why can't we build the same plant in Europe? Then the transportation costs would be even lower, and we could avoid some tariffs.
STRAUSS True, but then we wouldn't be able to use the tax credits.
STRAMAN The costs of building and operating a plant in Europe are higher, too.
PHlLLIPS Why don’t you look at some of the issues we’ve discussed and we’ll meet again Monday morning.
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