3. Ababila, the U.S. MNC from Question 2, is considering a third scenario, one in which the High Investment project includes a partial hedge of 66.67% of expected foreign currency cash flows using forward contracts. The breakdown of the unhedged and hedged cash flows is shown below. Unhedged Hedged Total Cash Flows Cash Flows Cash Flows Initial Outlay (Year 0) US$ 10,000,000 US$ 10,000,000 Year 1 Cash Flows COP 3,000,000,000 COP 6,000,000,000 COP 9,000,000,000 Year 2 Cash Flows COP 5,000,000,000 COP 10,000,000,000 COP 15,000,000,000 Salvage Value (Year 2) COP 10,000,000,000 COP 20,000,000,000 COP 30,000,000,000 The current spot exchange rate and Ababila's forecasts of the future spot rates are shown below, along with the forward rates quoted by Ababila's bank. Year 0 Year 1 Year 2 Expected Spot Rates COP 3500 / USD COP 3750 / USD COP 4000 / USD Forward Rates N/A COP 3600 / USD COP 3700 / USD Ababila's dollar-denominated cost of capital for the project in Colombia is still 9%. COD A. [15 points] What is the net present value of the project when 66.67% of expected foreign currency cash flows are hedged? Is this the same as the net present value when none of the cash flows are hedged, or is it higher, or lower? Do you think Ababila should utilize forward contracts to partially hedge expected cash flows as considered? B. [5 points] Assume that (covered) Interest Rate Parity holds. Is Ababila using forward rates as predictors of future spot rates? Explain your answer using the International Fisher Effect (IFE, which is the same as uncovered interest rate parity) as a reference point. In other words, you may wish to indicate whether or not IFE holds, and if it does not hold you can describe the nature of the deviation. Use this to explain the result you obtained in Part A