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Peacock Inc., a US based company, is planning to set up software development unit in India. The unit will remain in existence in India for one year…

CA Final · Advanced Financial Management · PYQS · May 2025

Peacock Inc., a US based company, is planning to set up software development unit in India. The unit will remain in existence in India for one year and the software is expected to get developed within this time frame. Software developed will be bought back by the US parent at a transfer price of USD 4 Million. The software developed will be sold in the US for USD 6 Million. Other estimates are as under: (i) Rent for fully furnished unit with necessary hardware in India is 25,00,000. (ii) Manpower Cost - 120 software professionals will be working for 10 hours@275 per man-hour each day for 350 effective days in the year. (iii) Administrative and Other Costs is 50,00,000 (iv) The rupee-dollar rate is 84 per USD. Peacock Inc. will enjoy the following privileges in India: A. All profits can be repatriated. B. No withholding taxes. C. Corporate taxes @20 percent on earnings. Assume 365 days in year. Advise Peacock Inc. on the financial viability of the project.

Suggested Answer and Working Notes:

Proforma profit and loss account of the Indian software development unit Particulars ₹ Revenue (USD 4 million x 84) 33,60,00,000 Less: Costs: Rent 25,00,000 Manpower (350 x 120 x 10 x 275) 11,55,00,000 Administrative and other costs 50,00,000 12,30,00,000 Earnings before tax (EBT) 21,30,00,000 Less: Tax 4,26,00,000 Earnings after tax (EAT) 17,04,00,000 Repatriation amount (in rupees) 17,04,00,000 Repatriation amount (in dollars) $ 20,28,571.43 or $ 20,28,571 Or $ 2.029 or $ 2.03 Million Advise: The cost of development software in India for the US based company is $ 1.971 or $ 1.97 million. As the USA based Company is expected to sell the software in the US at $ 6.00 million, it is advised to develop the software in India.

Topics: International Financial Management

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Peacock Inc., a US based company, is planning to set up software development unit in India. The unit will remain in existence in India for one year…

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