Suppose that Sherman Co., a U.S.-based MNC is considering a plan to establish a subsidiary in Singapore. The MNC would establish the subsidiary using an upfront investment of $10,000,000 and would sell the subsidiary after four years. While it is confident in the values of certain parameters of the capital budgeting analysis, there is some substantial risk in the tax rate on camnings remitted from Singapore as well as the salvage value. In particular, Sherman belleves that there are two possible tax rates with the following probabilitles. Possible Tax Rate Outcome Probability of Outcome 10.00% 70.00% 20.00% 30.00% 100% Additionally, Sherman believes that there are two possible salvage values with the following probabilities. Possible Salvage Value Outcome Probability of Outcome $12,000,000 $7,000,000 40.00% 60.00% 100% Since there are two possible values for the tax rate, and two possible values for the salvage value, there are four total scenarios as outlined in the following table. Scenario Withholding Tax 1 10.00% 2 20.00% Salvage Value S$12,000,000 S$12,000,000 S$7,000,000 3 10.00% 10.00% 20.00% S$7,000,000 5$7,000,000 Given these scenarios, Sherman seeks to estimate the expected net present value of the project in the face of this uncertainty. Consider scenario 2, where the tax ratt on remitted earnings is 20.00% and the salvage value is S$12,000,000. A subsection of Sherman's capital budgeting analysis is shown in the following table, beginning with the Singapore dollars generated by the subsidiary that will be remitted to Sherman Complete row (15) of the table, Aling in the taxes paid (in Singapore dollars) on remitted funds in each year. Then complete row (16), filling in the otal after-tax Singapore dollars remitted to the parent in each year. Next, complete row (19), filling in the U.S. dollar cash flows to the parent (after axes) Year 0 Year 1 Year 2 Year 3 $6,000,000 $6,000,000 $7,600,000 SS S. Ss SS SS SS 14. S$ Remitted before Taxes 15. Taxes (20.00%) 16. After-Tax S$ Remit 17. Salvage Value 18. Exchange Rate of S$ 19. After-Tax Cash Flows to Parent $0.50 $0.50 $0.50 Grado Stop 1 TOTAL SCORE: 0/4 to complete the landlock the