Murray Manufacturing, a U.S. based company, is considering expanding its operations into a foreign country. The required investment at Time = 0 is $10 million. The firm forecasts total cash inflows of $3 million per year for 2 years, $5 million for the next two years, and then a possible terminal value of $8 million.The government of the host country will block 20 percent of all cash flows. Thus, cash flows that can be repatriated are 80 percent of those projected.
Question 1. Assume that Murray's cost of capital is 12 percent, but it adds one percentage point to all foreign projects to account for exchange rate risk. Under these conditions, what is the project’s NPV?