Скачать или смотреть CA Final SFM(New) Nov. 2020 Q.6(b) & Jan. 2021 Q.1(b) . Part 2

Opus Technologies Ltd., an Indian IT company is planning to make an investment through a wholly owned subsidiary in a software project in China with a shelf life of two years. The inflation in China is estimated as 8 percent. Operating cash flows are received at the year end.
For the project an initial investment of Chinese Yuan (CN¥) 30,00,000 will be in land. The land will be sold after the completion of project at estimated value of CN¥ 35,00,000. The project also requires an office complex at cost of CN¥ 15,00,000 payable at the beginning of project. The complex will be depreciated on straight-line basis over two years to a zero salvage value. This complex is expected to fetch CN¥ 5,00,000 at the end of project.
The company is planning to raise the required funds through GDR issue in Mauritius. Each GDR will have 5 common equity shares of the company as underlying security which are currently trading at ` 200 per share (Face Value = `10) in the domestic market. The company has currently paid the dividend of 25% which is expected to grow at 10% p.a. The total issue cost is estimated to be 1 percent of issue size.
The annual sales is expected to be 10,000 units at the rate of CN¥ 500 per unit. The price of unit is expected to rise at the rate of inflation. Variable operating costs are 40 percent of sales. Fixed operating costs will be CN¥ 22,00,000 per year and expected to rise at the rate of inflation.
The tax rate applicable in China for income and capital gain is 25 percent and as per GOI Policy no further tax shall be payable in India. The current spot rate of CN¥ 1 is ` 9.50. The nominal interest rate in India and China is 12% and 10% respectively and the international parity conditions hold
You are required to
(a) Identify expected future cash flows in China and determine NPV of the project in CN¥.
(i) Determine whether Opus Technologies should go for the project or not assuming that there neither there is restriction on the transfer of funds from China to India nor any charges/taxes payable on the transfer of funds.
(ii) Calculate revised NPV, if O.T can transfer fund at the end of the project and internal cash accruals cannot be reinvested in China.