问答题1.YilandweYilandwe,whosecurrencyistheYilandweRand(YR),hasfacedextremelydifficulteconomicchallengesinthepast25yearsbecauseofsomequestionableeconomicpoliciesandpoliticaldecisionsmadebyitspreviousgovernments.AlthoughYilandwe’spopulationisgenerallypoor,itspeopleareneverthelesswell-educatedandambitious.Justoverthreeyearsago,anewgovernmenttookofficeandsincethenithasimposedanumberofstrictmonetaryandfiscalcontrols,includinganannualcorporationtaxrateof40%,inanattempttobringYilandweoutofitsdifficulties.Asaresult,theannualrateofinflationhasfallenrapidlyfromahighof65%toitscurrentlevelof33%.ThesestrictmonetaryandfiscalcontrolshavemadeYilandwe’sgovernmentpopularinthelargercitiesandtowns,butlesspopularintheruralareaswhichseemtohavesuffereddisproportionatelyfromthestrictmonetaryandfiscalcontrols.ItisexpectedthatYilandwe’sannualinflationratewillcontinuetofallinthecomingfewyearsasfollows:Yilandwe’sgovernmenthasdecidedtocontinuetheprogressmadesofar,byencouragingforeigndirectinvestmentintothecountry.Recently,governmentrepresentativesheldtradeshowsinternationallyandofferedbusinessesanumberofconcessions,including:(i)zerocorporationtaxpayableinthefirsttwoyearsofoperation;and(ii)anopportunitytocarryforwardtaxlossesandwritethemoffagainstfutureprofitsmadeafterthefirsttwoyears.ThegovernmentrepresentativesalsopromisedinternationalcompaniesinvestinginYilandweprimelocationsintownsandcitieswithgoodtransportlinks.ImoniCoImoniCo,alargelistedcompanybasedintheUSAwiththeUSdollar($)asitscurrency,manufactureshightechdiagnosticcomponentsformachinery,whichitexportsworldwide.Afterattendingoneofthetradeshows,ImoniCoisconsideringsettingupanassemblyplantinYilandwewherepartswouldbesentandassembledintoaspecifictypeofcomponent,whichiscurrentlybeingassembledintheUSA.Onceassembled,thecomponentwillbeexporteddirectlytocompaniesbasedintheEuropeanUnion(EU).TheseexportswillbeinvoicedinEuro(€).AssemblyplantinYilandwe:financialandotherdataprojectionsItisinitiallyassumedthattheprojectwilllastforfouryears.Thefour-yearprojectwillrequireinvestmentsofYR21,000millionforlandandbuildings,YR18,000millionformachineryandYR9,600millionforworkingcapitaltobemadeimmediately.TheworkingcapitalwillneedtobeincreasedannuallyatthestartofeachofthenextthreeyearsbyYilandwe’sinflationrateanditisassumedthatthiswillbereleasedattheendoftheproject’slife.Itcanbeassumedthattheassemblyplantcanbebuiltveryquicklyandproductionstartedalmostimmediately.Thisisbecausethebasicfacilitiesandinfrastructurearealreadyinplaceastheplantwillbebuiltonthepremisesandgroundsofaschool.Theschoolisideallylocated,nearthemainhighwayandrailwaylines.Asaresult,theschoolwillcloseandthechildrencurrentlystudyingtherewillberelocatedtootherschoolsinthecity.Thegovernmenthaskindlyagreedtoprovidefreebusestotakethechildrentotheseschoolsforaperiodofsixmonthstogiveparentstimetoarrangeappropriatetransportinthefuturefortheirchildren.Thecurrentsellingpriceofeachcomponentis€700andthispriceislikelytoincreasebytheaverageEUrateofinflationfromyear1onwards.Thenumberofcomponentsexpectedtobesoldeveryyearareasfollows:ThepartsneededtoassembleintothecomponentsinYilandwewillbesentfromtheUSAbyImoniCoatacostof$200percomponentunit,fromwhichImoniCowouldcurrentlyearnapre-taxcontributionof$40foreachcomponentunit.However,ImoniCofeelsthatitcannegotiatewithYilandwe’sgovernmentandincreasethetransferpriceto$280percomponentunit.ThevariablecostsrelatedtoassemblingthecomponentsinYilandwearecurrentlyYR15,960percomponentunit.ThecurrentannualfixedcostsoftheassemblyplantareYR4,600million.Allthesecosts,whereverincurred,areexpectedtoincreasebythatcountry’sannualinflationeveryyearfromyear1onwards.ImoniCopayscorporationtaxonprofitsatanannualrateof20%intheUSA.ThetaxinboththeUSAandYilandweispayableintheyearthatthetaxliabilityarises.AbilateraltaxtreatyexistsbetweenYilandweandtheUSA.Taxallowabledepreciationisavailableat25%peryearonthemachineryonastraight-linebasis.ImoniCowillexpectannualroyaltiesfromtheassemblyplanttobemadeeveryyear.Thenormalannualroyaltyfeeiscurrently$20million,butImoniCofeelsthatitcannegotiatethiswithYilandwe’sgovernmentandincreasetheroyaltyfeeby80%.Onceagreed,thisfeewillnotbesubjecttoanyinflationaryincreaseintheproject’sfour-yearperiod.IfImoniCodoesdecidetoinvestinanassemblyplantinYilandwe,itsexportsfromtheUSAtotheEUwillfallanditwillincurredundancycosts.Asaresult,ImoniCo’safter-taxcashflowswillreducebythefollowingamounts:ImoniConormallyusesitscostofcapitalof9%toassessnewprojects.However,thefinancedirectorsuggeststhatImoniCoshoulduseaprojectspecificdiscountrateof12%instead.Required:

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问答题(b)Comment on the impact of implementing TE's proposal and suggest possible actions Lamri may take as a result.(6 marks)

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