A professional accountancy institute in the United Kingdom is evaluating an investment project overseas - in Eastasia, a politically stable country. The project will cost an initial 2.5 million Eastasian dollars (EA$) and it is expected to earn nominal post-tax cash flows as follows.

Year1234

Cash flow (EA$'000)750 9501,2501,350

(a) expected inflation rate in Eastasia is 3% a year, and 5% in the UK.

(b)The current spot rate is EA$ 2 per 1 Sterling.

(c)The company requires a sterling return from this project of 16%.

Required:

Calculate the Sterling net present value of the project by discounting nominal annual cash flows in Sterling.