A US firm is evaluating a 3-year project in Germany. The expected cashflows from the project are as follows: Year 0 1 2 3 Expected Free Cash Flow (Million Euros ) -25 10 12 19 The current exchange rate is $1.20 per Euro. Assume the yield curve in the U.S. and Germany is flat. The risk-free rate in dollars is 3.0% and the risk-free rate in Euros is 5%. The firms WACC (weighted average cost of capital) for this project in USD is 10% and its WACC for this project in Euros is 14%. Calculate the NPV of this project in USD using expected Euro cash flows (i.e., assuming the project is funded from the German capital markets). Ans: $6.996 million Calculate the NPV of this project in USD using expected USD cash flows (i.e., assuming the project is funded from the US capital markets). Ans: $8.323 million What will be your recommendation based on the above analysis? Ans: Accept the project and fund it from the U.S. Capital markets 2) A US firm is evaluating a 3-year project in Germany. The expected cashflows from the project are as follows: Year 0 1 2 3 Expected Free Cash Flow (Million Euros ) -25 10 12 19