Brinpool plc has been invited to build a factory in the small state of Gehell by the government of that country. The local currency is the Ked (K) and data on current and expected exchange rates are as follows:

Initial investment will be K250 000 for equipment, payable in sterling, and K1m for working capital. Working capital will be financed by a local loan at 10 per cent per year, repayable in full after five years. Gehell’s government has also expressed a wish to acquire the factory from Brinpool plc as a going concern after five years and has offered K4.2m in compensation. Their loan would be recovered from the compensation payment.
Brinpool plc estimates that cash profits will be K3m per year, but also expects to lose current annual export sales to Gehell of £50 000 after tax. All after-tax cash profits are remitted to the UK at the end of each year.
Profits in Gehell are taxed at a rate of 15 per cent after interest and capital allowances, which are available on the £1.5m initial investment on a straight-line basis at a rate of 20 per cent per year. UK taxation of 30 per cent is charged on UK profits and a double taxation agreement exists between Gehell and the UK. Taxation is paid in the year in which it arises.
Other companies with similar business in Gehell have a weighted average after-tax cost of capital of 12 per cent. Brinpool plc feels that, due to the political risk of Gehell, it should apply a cost of capital of 18 per cent.
Advise whether the proposed investment is financially acceptable to Brinpool plc.

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Year 0 1 2 3. 4 5 K/ 3.50 4.00 4.40 4.70 4.90 5.00