Sales and selling price are presented in the table below:-
Year Sales in Units Unit Price(Rs)
1 2,00,000 1,000
2 2,25,000 1,500
3 2,50,000 1,800
4 2,75,000 2,000
5 3,00,000 2,200
Variable costs are Rs. 600 per unit in year 1 and are expected to rise by 15% each year.
Fixed Cost other than depreciation are Rs. 20 million in year 1 and is expected to rise by 10% per year.
All profit after tax realized by the affiliate are transferable to the parent company at the end of each year. Depreciation funds are to be blocked until the end of year 5. These funds may be invested in local money market instruments, fetching a tax-free return of 15%. When the operating assets are turned over a local corporation, the balance of these funds including interest may be repatriated.
The income tax rate in India is 48% but there are no with holding tax on transfer of dividends. Dividends received by Merck International in the United states would be subject to 50% tax.