Mr. Vishwas, a friend of Mr. Pramod who is one of the Directors of Ashirwad Limited, is a citizen of Mauritius. His immediate family members…

Mr. Vishwas, a friend of Mr. Pramod who is one of the Directors of Ashirwad Limited, is a citizen of Mauritius. His immediate family members including his parents, born in India are residing in India. He has many friends in different parts of India, due to which he happens to visit India on frequent basis. He along with Mr. Pramod evince interest in setting up business in India and formally incorporate a company to commence their operations. Accordingly, a company is called “Aerious Private Ltd." got incorporated in Mumbai. To start with he received a business proposal from one of his friends Nimish a consultant. It is estimated that in equivalent terms the business shall require an initial investment of MUR 100 Million and thereafter MUR 2 Million each year will be needed as working capital fund. He wished to evaluate whether the business proposal is viable or not. The information related to exchange rate and inflation rate is as follows: Spot Rate for 1 Mauritian Dollar (MUR) = 1.88 Indian Rupee (INR) The inflation in India is 6% and in Mauritius is 5%. It is expected that this inflation rate will remain unchanged for the next 4 years. INR 8 Crore out of initial investment shall be required for setting up a plant. The useful life of the plant is 4 years. At the end of 4 th year estimated salvage value of this plant shall be INR 80 lakhs. Depreciation of the plant shall be charged on the basis of straight-line method. 40% of the investment shall be through debt funds from Mauritius at the cost of 10% (post tax) while remaining funds shall be arranged by him and his friends. They expect a rate of return of 12% on their funds. Expected revenues & costs (excluding depreciation) in real term are as under: Year 1 2 3 4 Revenues (₹ Crore) 6.00 7.00 8.00 8.00 Costs (₹ Crore) 3.00 4.00 4.00 4.00 Assume that applicable tax rate in India is 30%. Since there is Double tax avoidance agreement between India and Mauritius, the company is not required to pay tax in Mauritius if tax has been paid in India. The applicable inflation rates for revenues & costs are as follows: Year Revenues Costs 1 10% 12% 2 9% 10% 3 8% 9% 4 7% 8% He wants an expert opinion for the same investment proposal. Demonstrate whether investment in this project is viable option or not. Note: 1. Round off calculations upto 4 decimal points. 2. Show INR calculations in Crore and MUR calculations in Million.