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linda_us
linda_us, Master's Degree
Category: Multiple Problems
Satisfied Customers: 1402
Experience:  A tutor for Business, Finance, Accounts and other related topics.
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How can I get the answers to the Gibson Company assignment?

Customer Question

How can I get the answers to the Gibson Company assignment?
Submitted: 1 year ago.
Category: Multiple Problems
Expert:  F. Naz replied 1 year ago.

Hello

Please provide details, thanks.

Customer: replied 1 year ago.
Hello F. Naz, I am not sure if you can help me. I see you have a Bachelor, and I am in a Master Program. Here are the details:
he Gibson Company is a United States (US) firm that is considering a joint venture with Brasilia, DF, a Brazilian firm that grows and processes coffee beans. Gibson has a patent for a new coffee processing method. This intellectual property is motivating Gibson to expand beyond importing coffee to engaging in a joint venture to process the coffee. Gibson will invest $8 million in the proposed joint venture project, which will help to finance Brasilia 's production using the newly patented process.
The Brazilian government has guaranteed that the after-tax profits (denominated in Reals, the Brazilian currency) can be converted to US dollars at the current exchange rate and sent to the Gibson Company each year. Current exchange rates can be found at http://www.oanda.com.For each of the first five years, 60 percent of the total profits will be distributed to Brasilia, while the remaining 40 percent will be converted to dollars to be sent to Gibson. The income tax rate for the joint venture will be 10%. However, the Brazilian government is considering raising the income tax rate to 30%. At the present time, the Brazilian government doe not impose a separate income tax on profits sent out of the country. However, the Brazilian government is considering imposing an additional 10 percent income tax on profits distributed to a foreign company. Assume that there are no other forms of tax. After considering the taxes paid in Brazil, assume an additional seven percent tax imposed by the US government on profits received by Gibson Company.The expected total profits resulting from the joint venture per year are as follows:
Year
Total Profits from Joint Venture (in BRL)
1
40 million
2
60 million
3
70 million
4
90 million
5
120 million
Gibson's average cost of debt is 6 percent before taxes. Its average cost of equity is 9 percent. Assume that Gibson’s US income tax rate is 10 percent. Gibson’s capital structure is 70 percent debt and 30 percent equity. Gibson adds between 2 and 5 percentage points to its cost of capital when deriving its required rate of return on international joint ventures. Gibson plans to account for country and other risks within its cash flow estimates.Gibson is concerned about country risk in the following two forms:(1) Will the Brazilian government increase the corporate income tax rate from 10 percent to 30 percent (20 percent probability)? If this occurs, Gibson will receive additional tax credits on its US taxes, resulting in no US taxes on the profits from this joint venture.(2) Will the Brazilian government impose a separate income tax of 10 percent on the profits distributed to foreign companies such as Gibson (20 percent probability)? If this occurs, Gibson will not receive additional tax credits, and the company will still be subject to US tax on the profits from this joint venture.Assume that the two types of country risk are mutually exclusive. If it does anything, the Brazilian government will only implement one of these changes in its tax policies (i.e., the increase in the basic income tax on the profits of the joint venture or the additional income tax on profits distributed to foreign companies). The Brazilian government may also choose to leave things as they are.Assignment1. Determine Gibson's cost of capital and required rate of return for the joint venture in Brazil.2. Determine the discrete probability distribution of Gibson's Net Present Value for this joint venture and calculate the Expected Net Present Value.3. Would you recommend that Gibson participate in the joint venture? Explain.4. What do you think would be the key underlying factor that would have the most influence on the profits earned in Brazil as a result of the joint venture?5. Under what circumstances might Gibson shift to more equity financing when considering joint ventures like this? What is the minimum required return that would still make this investment worthwhile?6. When Gibson was assessing this proposed joint venture, some of the managers in the company recommended that it borrow the Brazilian currency rather than using US dollars to obtain some of the necessary capital for the initial investment. They suggested that such a strategy could reduce Gibson’s exchange rate risk. Do you agree? Explain.7. Discuss the benefits of the joint venture from the perspective of Brasilia. What is the maximum amount of money Brasilia should invest?
Customer: replied 1 year ago.
The first word should the "The" Gibson....
Customer: replied 1 year ago.
I'm sorry typo again; the first word should be "The" Gibson ....
Expert:  F. Naz replied 1 year ago.

Hello

Please mention your deadline, thanks.

Customer: replied 1 year ago.
Tonight by 11:00 (Eastern Time).
Expert:  F. Naz replied 1 year ago.

How many hours from now are remaining?

Customer: replied 1 year ago.
Where are you?
Customer: replied 1 year ago.
Right now it is 1 hour.
Customer: replied 1 year ago.
Hello F. Naz - I am not quite sure if you are assisting me. Is there anyway you can let me know; I would truly appreciate it.Thank you
Expert:  F. Naz replied 1 year ago.

Sorry, I cannot assist you in such a short time, thanks.

Customer: replied 1 year ago.
Are you able to assist me with having more time, because right now, I am late; but I would rather a couple of points taken off for lateness, rather than not submitting at all.
Expert:  F. Naz replied 1 year ago.

Yes, I can provide the answer in next 24 hours, please let me know if this works for you, thanks.

Customer: replied 1 year ago.
What about 9:00 a.m. (Eastern time)? Is that too early?
Expert:  F. Naz replied 1 year ago.

Please mention the deadline in hours so I can advise you on that, thanks.

Customer: replied 1 year ago.
I am sorry; in 9 hours?
Expert:  F. Naz replied 1 year ago.

Sorry, that would be quite early.

Customer: replied 1 year ago.
what do I do now? Do I repost my assignment to see who can pick it up?
Expert:  F. Naz replied 1 year ago.

In that case I will opt out and your question will be visible in the list again, thanks.

Customer: replied 1 year ago.
Thank you.
Expert:  F. Naz replied 1 year ago.

Your always welcome.

Customer: replied 1 year ago.
Hello F. Naz!
Customer: replied 1 year ago.
I never received a response from a Business Tutor. I guess, you would have had my assignment done for me already.
Expert:  F. Naz replied 1 year ago.

You still need the answer?

Customer: replied 1 year ago.
Hello F. Naz ! Yes; my Professor gave me a day extension. Can you help me? None of the other experts responded.
Expert:  F. Naz replied 1 year ago.

Hello

I am sending you the offer please accept it so I can provide the answer in next 24 hours, thanks.

Customer: replied 1 year ago.
Where would the offer be?
Expert:  F. Naz replied 1 year ago.

As it is too lengthy therefore the fair price is $300, if you agree please contact JA customer service in this regard to open a new question with this fair price,

Customer: replied 1 year ago.
No thanks;
Expert:  F. Naz replied 1 year ago.

Okay take care.