A. HP (USA) is considering opening a factory in Spain. The following data are given. The initial investment is 215 million euros. 1. Current exchange rate ($/) = 1.2805. The spot rate is expected to move according to the PPP between the U.S. and Spain. U.S. and Spanish inflation rates are expected to average 3 and 5 percent per year respectively over the investment period. 2. Remittable operating cash flows in local currency are estimated to be as follows: Cash flow (in millions) The applicable discount rate is 7% 3. Lost sales from existing operation will cost HP an average of $25,000 per year. The applicable discount rate is 8% 4. The project will generate a net-of-tax depreciation allowance of $75,000 per year for five years (Appropriate discount rate is 6%) 5. Extra tax benefits of $15,000 per year can be generated with an applicable discount rate of 5%. 6. At the end of the five year project life the nominal salvage value (in local currency) is expected to be 15% of the original cost in local currency (appropriate discount rate is 9%). Use the APV decision rule to determine if HP should build this plant