1. Bloomberg PLC is a UK-based manufacturer of construction equipment. The company is planning to set up a subsidiary in Kansas, USA. The net dollar cash flows from the subsidiary for a five-year planning horizon are estimated as follows:

Year	0	1	2	3	4	5
Net cash flows $m	(3,500)	1,850	2,160	2,520	2,520	2,870

The finance manage is particularly concerned with the exchange rate estimates used in the analysis of net present value as the exchange rates are expected to fluctuate widely. After detailed simulation analysis, the finance manager required to estimate the actual exchange rate after taking the inflation rate on year 0 is 20% in UK.

The spot-dollar-Euro exchange rate is $2.0/1.0 and estimated inflation rate to reduce by 10% every year. The US inflation rate remain 12% every year.

Assume a discounting rate of 10%.

Required:

1. Evaluate the effect on the Net Present Value (NPV) of the project.